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The COVID-19 pandemic accelerated the shift to remote work, which was already on the rise due to technological advances. Currently, more employees are working from home and other nontraditional spaces, including coworking spaces and home offices.
As the remote work trend continues to grow, employers and employees must understand the legal implications and regulations surrounding remote work arrangements. Let’s take a look at the legal landscape surrounding remote work.
Employment Status of Remote Workers
Typically, remote workers fall into one of three general categories:
- Independent contractors: Independent contractors are self-employed individuals who provide services to a client or company. They have more flexible work arrangements, must pay their taxes, and are not entitled to benefits. The IRS may view a worker permitted to work anywhere and at any time as an independent contractor.
- Employees: Remote workers can also be considered employees if they meet certain criteria. The distinction between independent contractors and employees depends on an analysis of factors such as control over work, level of independence, and financial arrangements. Employees are entitled to benefits, protections under labor laws, and tax deductions.
- Freelancers: Freelancers work on a project basis for various clients. They have greater autonomy over their work schedules and often negotiate their pay rates. Freelancers are usually not entitled to employee benefits but may be subject to different tax regulations.
Tax Considerations
Remote work can present unique tax considerations for both employers and employees. Here are some key factors to consider:
- Jurisdiction: Employers with remote workers in different states may be subject to tax obligations in those jurisdictions, depending on their nexus, or their connections, to those states. A convenience of the employer test may also apply, where taxation depends on whether an employer requires an employer to work out of state versus permits telecommuting. Employers with even just one employee working in a state may be subject to corporate registration requirements and business taxes.
- Withholding and reporting: Employers must comply with tax withholding requirements, including income tax, Social Security contributions, and other applicable taxes. Typically, employers withhold taxes based on the physical location where work is performed. That means employees working remotely may need to report their income and pay taxes in the jurisdiction where the work is performed. Temporary presence laws may set a threshold for how long employees can be present in a state or how much they can earn in a state before withholding is required.
- Double taxation: Employees working abroad may be taxed in both their country of residence and the country where they perform the work. Double taxation treaties between countries often exist to mitigate these issues.
Wage and Hour Issues for Remote Employees
Employers with remote workers must make sure they are following the Fair Labor Standards Act and state and local wage and hour laws as well. Keep in mind that some laws apply only to employers that have a certain number of employees in a location or who work a certain percentage of their time in that location. Potential issues may arise in the following areas:
- Minimum wage: A company with employees in different states may be subject to different minimum wage rates. If both a state and local minimum wage law applies to an employee, the more generous law applies.
- Overtime pay: Different states have different requirements that exceed federal law for overtime pay obligations. In New York, employers must pay overtime to anyone who works more than 40 hours in a week.
- Meal periods and rest breaks: Different states mandate different meal times and rest breaks for employees, and employers must have a system to monitor compliance.
- Sick leave and other leave: More states are adopting paid sick leave, maternity and paternity leave, and medical leave laws. Employers must share notices about the availability of this leave and ensure they are abiding by the rules.
- Payroll: States have varied requirements for payday frequency, the information that paystubs must include, the payment of accrued but unused vacation, and the timing of payment upon separation from employment. States and localities also have specific requirements for filing deadlines and tax rates that employers must obey.
Other Worker Rights and Protections
Remote workers are entitled to various rights and protections, including the following:
- Health and safety: Employers have to ensure the health and safety of remote workers, provide them with a safe working environment, and address any work-related risks or hazards, even if they are working from home. Workers’ compensation applies based on where employees are working, and state laws may define what qualifies as a work-related injury differently. Moreover, policy addenda may be required for employees in multiple states.
- Discrimination and harassment: Remote workers should be protected from discrimination and harassment based on factors such as sex, race, age, disability, genetic information, military status, and more. Different states add more protections than federal law. Employers must address and prevent these issues in alignment with state and local law, which may require holding training sessions, establishing company policies, and sharing certain government notices.
- Employee privacy: Some employers monitor productivity to ensure employees are productive and engaged. In New York, employers must only disclose the existence of monitoring. In other states, monitoring is limited or disallowed.
- Licensing: Employers subject to licensing requirements may need to apply for permits or licenses, such as for construction, insurance sales, and financial counseling.
Where to Get Help with Questions About Remote Work Laws
As remote work becomes increasingly prevalent, it is crucial to understand the legal implications and regulations surrounding this work arrangement. The best way for employees in New York to protect their remote work rights is to consult an experienced employment lawyer.