While there are advantages for employers with a remote staff, there are numerous financial issues to consider when you employ telecommuting employees.
However, you can alleviate many of the issues if you have a written agreement with employees who work at home.
To avoid incurring the wrath of the Internal Revenue Service and before we examine the issues in the following overview, here’s a note of caution: Always remember to get expert advice as every locale and situation is different.
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Your tax liabilities are contingent upon your types of employees. Affected are whether you’re obligated to withhold and pay taxes, benefits and overtime.
There are types of remote workers.
- Full-time employees: Whether you hire local or non-local full-time employees, you’ll be subject to a myriad of laws and regulations.
- Contractors: Many companies prefer to hire contractors for financial reasons. Contractors are responsible for their taxes and benefits.
But that doesn’t mean it’s an easy process. It isn’t. The IRS has definite ideas on how to classify employees. Basically, they have to use their own equipment.
- Sole proprietorships: In this scenario, people work for the company by setting up their own businesses and invoice the company for their work.
This is the easiest for companies. But it’s more difficult for many workers for a couple of reasons.
Firstly, with a different mindset, they think like employees and don’t think like business owners.
Secondly, it’s more paperwork for them to establish such a business, and in many nations it’s very expensive.
Again, make certain you’re in compliance with the IRS in deciding on a worker classification.
Do your utmost to hire the best workers, and lawfully comply with tax requirements across state and national borders.
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Even though technology makes it possible to transfer money with the click of a button, you must research your best payment provider based on the location of your remote employees.
You must also allow for taking the important measures in filing, withholding and health benefits.
For employees in the U.S., all you have to do is set up a process with your bank.
For contract workers paid more than $600 annually, you have to generate a 1099 form. For them, often just a simple PayPal payment is satisfactory.
For international workers, your labor cost is less. Beware: Payment systems such as bank wire transfers cost more than you’d expect to pay.
Some companies prefer to use services such as Upwork to pay workers, but it’s costly.
There are also exchange rates to consider. In unfavorable exchange rates, there hidden costs. But you can economize with TransferMate. This means you can send money at the actual exchange rate for a low commission.
Taxes
Your salient consideration should be taxes and the location of your employees. You’ll have different policies in the myriad of regions.
Employees will have to pay income and payroll taxes via withholding on their paychecks based on where they live. That’s why a lot of companies use a service like Gusto.
International workers
Hiring internationally represents other obstacles. Although there are exceptions, you’ll have to create a local operation or branch. You’ll have to be cognizant of the countries’ laws regarding pay and benefits.
That’s why many companies hire contractors vis-à-vis employees. Then, workers pay their own taxes.
Three principles in hiring remote workers.
- Keep it simple. Consider a payroll service to keep you in compliance on taxes.
- Don’t cut corners. Don’t risk alienating the IRS or breaking laws.
- To help insure you have happy and productive workers, make sure they’ll be content with how you classify them.
Remote employee reimbursements
Certainly, there will be telecommuting employee expenses to reimburse. And some you shouldn’t reimburse because they’re not your responsibility nor will they be allowed by the IRS.
For example, employees pay for their own electricity costs.
Some employees complain of higher electricity costs from using air conditioning in the hot, humid summers. Beware: They forget they only have a 10-second commute and can dress as casually as they want.
You can choose to reimburse employees for technology but it’s best for you to buy it so you can depreciate them or deduct the costs from your income taxes.
Instead of buying employees an office desk and chair, consider allowing them to take the furniture home from your office especially if its several years old.
You should supply employees with the technology required to do their jobs. For security reasons, don’t allow them to use the computer or cellphone for personal use.
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Reimburse employees for Internet and WIFI, but be certain employees track their personal vis-à-vis business use and give you documentation for reimbursement and your tax purposes.
If you need remote workers to come to the office, you will reimburse them for their mileage. But you need to use authorized IRS payment amounts.
When Companies Must Pay Overtime for Commute, Travel
If nonexempt employees’ duties involve travel to your office or other locations, they must also be paid for their time.
And normally for time-keeping purposes, the employees’ day starts when they turn on the computers.
Finally, check with your expert on any of these matters and make sure you have a written agreement with your remote workers.
From the Coach’s Corner, related information:
Guidelines to Meet FLSA Responsibilities for Remote Workers – As an employer, you have a myriad of responsibilities under the Fair Labor Standards Act (FLSA ) for exempt and nonexempt workers who work at home.
Is New Managing Approach Needed for Your Remote Staff? – If your company is relying on remote workers as the result of the coronavirus pandemic, you might need to be more astute in managing your staff. Here’s why and what you can do.
Coronavirus Prompts Best Strategies for a Remote Workforce – To achieve the most productivity with employees working from home as a result of the coronavirus, the right tech-contingency strategies will prevent disruption in your company’s operations.
“Companies are not charitable enterprises: They hire workers to make profits. In the United States, this logic still works. In Europe, it hardly does.”
-Paul Samuelson
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