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The Mobile Employee Tax Problem

Once remote work became a long-term reality for many organizations in 2020, some employees opted to work from different places, including outside their own state or country.

While technology and circumstances allowed them to do so effectively, it could cause their employer a headache in 2021. 

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Topia, a global talent mobility company, found that 28% of the 1,250 United States and United Kingdom employees it surveyed worked outside their home state or country, but only one-third of them reported all of those days to HR. Consequently, their employers may have failed to withhold payroll taxes appropriately but didn't realize it. These enterprises risk hefty penalties in the event of an audit.

“HR leaders recognize that remote and distributed work offers a competitive edge for attracting and retaining talent and for building diverse, highly skilled teams,” said Shawn Farshchi, CEO of Topia. “As flexible work becomes a mainstay of business culture and talent strategy, HR and finance leaders must collaborate to make it work from a compliance perspective. The potential advantages are too important to ignore.”

High Enthusiasm for Remote Work
Topia’s survey found that employees said the flexibility to work remotely is now the second most important attribute in an employer — behind high pay and ahead of both professional development and culture.

  • 91% of employees agree that they should be able to work from wherever they want as long as they get their work done.
  • 82% of employees now agree that “teams should be built based on experience and skill sets needed, not location.” 90% of HR pros concur.
  • 94% of HR pros believe that increased remote work will enable them to build more diverse teams.

Tax Compliance Is a Blind Spot
Despite this enthusiasm for remote work, enterprises are unprepared from a compliance standpoint. Some employees forget to report days worked outside their home state or country. Others appear to hide their location to avoid cost-of-living adjustments to their salaries. The risks are hard to overstate: 

  • 93% of HR professionals are confident they know where the majority of their employees are working and 78% are confident their employees self-report when working in another state or country.
  • However, in reality, only 33% of employees report all those days, and 24% reported none at all, even though 61% are aware of the tax compliance implications.
  • HR professionals were more likely to have worked in a different state or country (42%) but still struggled to report these workdays, suggesting that self-reporting is a challenge, even for those that know the rules.

Location Tracking Is Welcome
Some employers could opt to utilize technology that logs employee work locations while respecting their privacy. With better location data, finance departments could, for instance, comply with payroll withholdings for employees, and HR teams could manage immigration risk, no matter where employees choose to work.

  • 94% of employees are comfortable with an employer tracking their location at the country, state and city level.
  • 81% would even be comfortable with location tracking down to the street level.

UK employees were slightly more likely than their U.S. counterparts to report all days worked outside their state or country. That doesn't mean UK enterprises are at less risk. In fact, overconfidence among UK HR pros may place their organizations at even higher risk.

  • 46% of UK employees were unaware of the tax implications of working outside their home state or country compared to 32% of U.S. employees.
  • 70% of UK HR pros were “very confident” they knew where employees were working compared to only 50% of their U.S. counterparts. They were also far more confident that their employees reported days worked outside their home state or country (46% v. 24%).
  • 36% of UK employees reported all remote workdays outside their state or country v. 31% of U.S. employees. That does not justify the 20-point confidence gap between UK and U.S. HR, survey analysts said.

“The mobility landscape has shifted dramatically in the past 12 months. Now, every remote employee is a mobile employee,” said Richard Tonge, global mobility services leader at professional-services firm Grant Thornton LLP. “Most critical for employers is the need to manage remote work policies once they've been implemented.”


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