Compliance_with_taxes_wage_hour_other_legal_issues

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Compliance_with_taxes_wage_hour_other_legal_issues

  1. 1. Human Resources Report™ Reproduced with permission from Human Resources Report, 30 HRR 1060 , 10/1/2012. Copyright ஽ 2012 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com Te l e w o r k In this BNA Insights article, Margaret Hart Edwards, a shareholder with Littler Mendel-son PC, and Sandy Burud, a principal at FlexPaths, discuss the many issues human re-sources practitioners must consider when implementing a telework program.Making Telework Work for Your Organization: Taxes, Wage & Hour Compliance, andOther Legal IssuesBY MARGARET HART EDWARDS AND SANDY BURUD workers2 is shifting the focus from ‘‘allowing’’ telework to encouraging or even requiring it. There are other ad- s the ‘‘cloud’’1 replaces the file cabinet and dis-A persed teams communicate through technology rather than face-to-face, enabling employees towork from home or other remote locations has become vantages as well: the ability to draw talent from a pool unrestricted by geography, the ability to retain employ- ees with caregiving responsibilities, boosting engage- ment, reducing lost productivity caused by commutea core competency for HR. Telecommuting (or tele- problems, reducing greenhouse gases, and reducingwork), once perceived as a perk bestowed only on wor- health care costs by lowering employee stress and burn-thy employees, has morphed into a standard way of out. For many managers the question is no longer,working in some environments. Leaders are now ‘‘Should we?’’ but, ‘‘How do we do it right?’’promoting—even requiring—telework in certain jobs inorder to save money and increase performance. Reap- Having a small number of employees telework is oneing average savings of $500,000 per year in office space thing. Making it work organization-wide requiresalone for each group of 100 full-time equivalent tele- changing common HR practices. What do HR practitio- ners need to know? The following provides answers to 1 the four questions that arise most often: With ‘‘cloud-computing,’’ company software and docu-ments are stored on servers ‘‘in the cloud’’ over the internet in- 1. What costs does the employer have to pay for?stead of on company computers. The laws in various states are just beginning to define what costs must be assumed by the employer. The most common standard is that the employer must reimburse Margaret Hart Edwards is a shareholder with reasonable and necessary costs incurred by the tele- Littler Mendelson P.C., the world’s largest worker. Thus, a threshold question is whether the tele- employment and labor law firm representing work is for the convenience of the worker, or required management, and Sandy Burud is a princi- by the employer. If telework is required by the em- pal with FlexPaths, a global provider of web- ployer, these costs are likely to include: the cost of a based and consultative flexible working dedicated computer if the computer must meet certain solutions. Edwards regularly advises and rep- technical and security requirements; associated equip- resents employers in a broad variety of employment matters, and Burud works with 2 employers to respond to changing workplace ‘‘The calculation assumes 30 sq. ft. per person space @ needs and design flexible work strategies. $168/ sq. ft. office lease cost based on a 2005 study from Old They can be reached at mhedwards@ Dominion University which places the national average price for commercial ‘office’ real estate at $168 per sq. ft.’’ OLD DO- littler.com and sandy.burud@flexpaths.com, MINION UNIVERSITY CENTER FOR REAL ESTATE AND ECONOMIC DEVELOP- respectively. MENT, 2005MARKET SURVEY (2005), available at http:// www.odu.edu/creed.COPYRIGHT ஽ 2012 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 1095-6239
  2. 2. 2ment necessary for work, such as a printer/scanner/fax; and that teleworkers have signed off on the policies,the monthly cost of a broadband connection sufficient agreeing to comply with them.to handle the employer’s data; locking file cabinets; ashredder; and ergonomic equipment such as a chair, s Implement electronic timekeeping systems thatkeyboard tray, and document holder. In addition, the require a certification by the employee that all timeemployer would be expected to reimburse the employee worked has been entered and that all time entries arefor office supplies and cell and landline telephone accurate.charges (other than those that are personal). If the em- s Conduct periodic audits of other electronicallyployee already owns the required equipment, and re- generated records against the time records. These othertains the ownership and personal use of the equipment, records could include time stamps on emails, in log-inthe employer’s duty to reimburse becomes less obvious records, in web logs, or in the employer’s specializedand harder to calculate. One solution is for the em- systems.ployer and employee to enter into an explicit agreementfor the employer to pay a ‘‘usage charge’’ for the busi- s Enforce a zero tolerance policy for off-the-clockness use of the personal equipment. For this charge to work or inaccurate time keeping through discipline ofmeet state law requirements, it should be reasonably re- both teleworkers and their supervisors.lated to the actual proportional cost of the equipment or s As discussed above, in situations where travelto the proportional cost of equivalent equipment in an time for the teleworker to the employer’s place of busi-employer’s office environment (based on the proportion ness is compensable work time, adapt timekeeping poli-of business use of the equipment). As the employer may cies and systems to include this compensable time. Thewish to retain full monitoring control and security of employer may adopt a special hourly rate of pay (notemployer data, it may be more advantageous for the less than the minimum wage) for all compensable travelemployer to purchase and issue equipment to the tele- time.worker rather than to allow the employee to retain own- 3. Can an employer require employees to telework?ership and control of the equipment. In most cases, the employer will have the flexibility to If the employer requires the teleworker to attend out- require telework, because most private non-union em-side meetings, including meetings at the employer’s ployment relationships are presumed to be at-will. Thissite, the employer may have to reimburse the costs of means that terms and conditions of employment cantravel to those meetings. When a worker teleworks only usually be modified on a prospective basis by givinga certain number of days per week, but must work in reasonable notice in advance. The amount of advancethe employer’s office the remaining days, the commute notice varies based on case law in each state. Generally,costs for the days in the employer’s office are not re- it is advisable to give 30 to 90 days of notice.quired to be reimbursed, as ordinary commute costs are The employer may not be able to require teleworknot paid by the employer. unilaterally if there is an oral or written contract be- If the employer does not require telework, but simply tween the employee and employer specifying a locationpermits employees to telework for their convenience, of employment, or under the terms of collective bar-then the costs of equipment and internet connections gaining agreements. In the former case, the employeefor telework may be the responsibility of the employee. and employer would have to agree to amend the con- 2. What steps can an employer take to help ensure com- tract. In the latter case, the employer and union wouldpliance with wage and hour laws? have to bargain for a change in the terms and condi- The difficulty of complying with wage and hour laws tions of employment.has caused some employers to restrict telecommuting It is often easier to hire a person into a telework po-to employees who are exempt from overtime. One of sition than to convert a current employee relationshipthe biggest concerns is that nonexempt employees will to telework if the current employee is reluctant to tele-make claims that they worked off-the-clock. However, work. An employee’s reluctance may be due to a varietytechnology now offers better means to comply with of reasons: the individual may value the separateness ofwage and hour laws. There are multiple steps that will work and home, lack the space for a home office, be-help an employer to be in compliance, including: lieve that the distractions of working at home will inter- fere with performance, or desire the companionship s Determine which wage and hour laws apply. The and social life of the workplace. If the worker is reluc-federal Fair Labor Standards Act will apply as a base- tant to telework, the arrangement may not be success-line in every state. However, some states have addi- ful, so the reasons for his or her reluctance should betional rules for daily overtime, meal and rest breaks, explored and alternative solutions considered. Such al-premium pay on the seventh day of work, etc. If a tele- ternatives may include: (1) the gradual conversion of aworker is in a state with protections beyond the FLSA, work unit to telework as incumbents leave, (2) incen-even if the worker reports to a boss in another state tives to telework to make it more attractive, (3) the op-with fewer protections, the employer should apply the tion to telework part of the time, and (4) the creation ofprotections in the state where the teleworker actually substitute social structures to create a sense of belong-performs services. ing and reduce isolation. 4. Where must an employer pay its employee’s employ- s Adopt very clear policies regarding work hours, ment taxes—in the state where the company is located,meal and rest breaks, overtime, and timekeeping. where the employee lives, or both? s Adopt a protocol for email approval of overtime There are really two separate questions when itwork in advance. comes to taxes. The first question is, to which state must ‘‘employment taxes’’ be paid? In most cases, that s Make sure that teleworkers and their supervisors generally refers to state unemployment taxes, althoughare trained and periodically retrained on the policies, in several states there are additional taxes. For ex-10-1-12 COPYRIGHT ஽ 2012 BY THE BUREAU OF NATIONAL AFFAIRS, INC. HRR ISSN 1095-6239
  3. 3. 3ample, California also has state disability insurance addition, some states have reciprocity agreements. Fortaxes and an employment training tax. Regardless of example, if an employee lives in New Jersey but workshow many states an employee works in, unemployment in Pennsylvania, the employer is not required to with-insurance taxes are only paid to a single state. All states hold Pennsylvania income taxes under an agreementuse the same four-part test to determine the proper between New Jersey and Pennsylvania.state to report and pay unemployment insurance taxes: As a general proposition, then, if employees will (1) localization; work in several states, it becomes imperative that an (2) base of operations; employer require an employee to track and record time (3) place of direction and control; and in different locations in order to determine whether tax (4) state of employee’s residence. withholding should occur in more than one location. This test must be applied in hierarchical order; that Generally, taxes are withheld in the state where a per-is, it must first be determined if the work is localized to son is a resident (and presumably works on a regulara particular state. An employee’s services are ‘‘local-ized’’ in a particular state if all or most of the employ- basis, and also assuming the state has an income tax)ee’s services are performed in such state, with only in- because a resident is taxed on all their income, regard-cidental services performed elsewhere (for example, less of where it is earned. For a nonresident, however,where the out-of-state service is temporary or transient income can only be taxed to the extent it is earned.in nature, or consists of isolated transactions). Where Many states allow for offsets for multistate withholding.the services performed outside of the state are perma- For example, if a California resident works in Arizona,nent, substantial, or unrelated, it cannot be treated as and withholding in California is $100 while withholdinglocalized to a particular state. in Arizona on Arizona source income would be $80, If an employee’s services are not localized to a par- California law states that the employer should withholdticular state (because, for example, he or she spends 33 $80 for Arizona and $20 for California. This alleviatespercent of his or her time in three separate states), then the double taxation caused by multistate withholding.the next test to apply is the ‘‘base of operations.’’ Under Conclusion These four questions— what costs the em-this test, unemployment insurance taxes are paid to the ployer may have to pay, how to comply with wage andstate in which the employee has his or her only base of hour laws, whether the employer can compel telework,operations. A base of operations is generally considered and what tax implications might arise—require employ-to be a more or less permanent place from which the ers to engage in thoughtful analysis before embarkingemployee starts work and customarily returns to re-ceive the employer’s instructions, to receive communi- on a program of telework. As a practical matter, imple-cations from customers or others, to replenish stocks or menting a telework program properly can help employ-supplies, to repair equipment, or to perform other func- ers attract and retain excellent employees, reduce over-tions relating to the rendition of services. For example, head costs, and increase productivity. However, if em-if an employee telecommutes, but is assigned to an of- ployers are not attentive to the legal constraints goingfice location where he or she comes for meetings, ob- in, they may find that they face expensive and legallytains supplies, etc., such office location would be con- complex claims that reduce or eliminate the savings insidered a base of operations. overhead. If the employee’s services are neither localized nor The practical benefits of telework are being realizedsubject to a base of operations, the third test is the by ever greater numbers of employers and employees.‘‘place of direction and control.’’ Under that test, if an The estimates of the number of teleworkers in theemployee performs some services in a state and it is United States vary widely, depending on the source ofalso the place from which the employer exercises basic the statistics, and whether the statistics count only full-and general direction and control over all the employ- time teleworkers, or those who telework on an ad hocee’s services, then unemployment insurance taxes are basis. Thus, only a small percentage of the workforcesourced to such state. teleworks most of the time, but an ever-growing per- Finally, if none of the previous three tests apply, then centage, about 25 percent, teleworks at least some ofunemployment insurance taxes are sourced to the em- the time.3 The Bureau of Labor Statistics studied tele-ployee’s state of residence. work patterns and found that they were age and gender The second question is, in which states must the em- agnostic, but that those who had college educations andployer withhold and remit an employee’s income taxes? were in managerial and professional occupations wereUnlike unemployment insurance taxes that are paid to more likely to telework, and that teleworkers work fivea single state, income taxes may be paid to several to seven hours more per week than non-teleworkers.4states. Residents of a state are generally subject to tax Cisco Corporation reported in 2012 that by 2016 43 per-on 100 percent of their income, regardless of where it is cent of U.S. employees will telework at least part time,earned. Nonresidents, however, are only subject to in- so employers must master the legal issues involved.5come tax on income earned within the state. Thus,when an employee works in more than one state, an 3employer may be obligated to withhold and remit in- Make Telework Pay Off, 56 HR MAGAZINE No. 6 (June 1,come taxes to more than one state. 2011), available at http://www.shrm.org/Publications/ The states have very different rules about when in- hrmagazine/EditorialContent/2011/0611/Pages. 4 Mary C. Noonan and Jennifer L. Glass, The Hard Truthcome taxes must be withheld. For example, New York About Telecommuting, MONTHLY LABOR REVIEW, 38-45 (Juneand Connecticut both have a 14-day de minimis rule 2012).that states if an employee is working in the state for 14 5 Michael Moffa, The Future of Teleworking: You Can Beddays or less in a calendar year, then there is no income on It (Apr. 4, 2012), http://www.recruiter.com/i/the-future-of-tax withholding. Other states use a dollar threshold. In teleworking-you-can-bed-on-it/.HUMAN RESOURCES REPORT ISSN 1095-6239 BNA 10-1-12

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