The COVID-19 pandemic accelerated our shift to remote work, which was already on the rise with the advent of new technology. Even before 2020, employees worked from nontraditional spaces, including coworking spaces and home offices.
As the remote work trend continues to grow, employers must understand the remote work law implications and regulations surrounding remote work arrangements so they are not caught unaware and subject to new administrative burdens or, even worse, a lawsuit. The following sections highlight critical remote work legal issues that employers should consider.
Employment Status of Remote Workers
Determining remote workers’ employment status determines employers’ and employees’ legal obligations and rights. 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 own 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 own rates. Freelancers are usually not entitled to employee benefits but may be subject to different tax regulations.
Employers and employees must understand the remote work law implications of each category to comply with tax laws, labor and employment laws, and more.
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 employee 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 this issue.
Data Protection and Security
Data protection and security become paramount when remote work involves handling sensitive data or personal information. Employers must take appropriate measures to safeguard data and comply with relevant privacy laws. Here are some key considerations:
- Data access and storage: Employers should implement secure methods for remote workers to access company systems and data, such as using virtual private networks (VPNs) and encrypted connections. Proper data storage protocols and backups should also be in place.
- Data privacy laws: Remote work may involve the transfer of personal data across borders. Employers must ensure compliance with data protection regulations, such as the EU’s General Data Protection Regulation (GDPR), by implementing appropriate safeguards and obtaining necessary consent.
- Confidentiality agreements: Employers can protect their proprietary information and trade secrets by requiring remote workers to sign confidentiality agreements. These agreements outline employees’ responsibility to maintain the confidentiality of sensitive information, regardless of where they work.
Wage and Hour Issues for Remote Employees
Employers with remote workers must ensure they are following the Fair Labor Standards Act and state and local wage and hour laws. Remember that some laws apply only to employers with 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. Generally, the employer must pay the minimum wage in the state where the employee performs the work. 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 some states, employers must pay overtime to anyone who works more than 40 hours a week. In others, employees are due overtime if they work more than eight hours a day and double pay if they exceed a specific daily or weekly hour threshold.
- Meal periods and rest breaks: Different states mandate different meal and rest breaks for employees, and employers should have a system to ensure 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 these leave benefits 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 filing deadlines and tax rate requirements 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 must 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 work, and state laws may define what qualifies as a work-related injury differently. Policy addenda may also 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 laws, which may require training sessions, establishing company policies, and sharing certain government notices.
- Employee privacy: Speaking of privacy, some states are cracking down on employer monitoring of employee activity. Some employers monitor activity to ensure employees remain productive and engaged. In some states, employers must disclose the existence of monitoring and gain employee consent. In other states, monitoring is more limited or even disallowed in certain circumstances.
- 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 remote work law implications and regulations surrounding this work arrangement. By understanding employment status, tax considerations, data protection, and workers’ rights, both employers and employees can navigate the remote work landscape more effectively while ensuring compliance with applicable laws.