when it comes In remote employment, employees and employers both face a plethora of benefits and pitfalls. Although the cultural advantages and disadvantages have been covered, the considerations from a configuration and maintenance perspective have largely not been addressed. There are important legal and tax implications to keep in mind when dealing with a remote workforce.
Virtual teams existed long before COVID-19, but over the past two years, employees have turned not being able to go to an office into an advantage when leaving their employer’s state. For startups, hiring out-of-state employees became common as remote businesses were built from scratch and talent was far more critical than location.
If your startup starts or goes remote, keep the following in mind.
Remote workers have tax implications for their businesses. Specifically, there is a withholding tax on state salaries. This is generally required for the state where an employee works or provides services, regardless of the location of the employer. This means that your startup may need to register and withhold income taxes in multiple states.
These are complicated problems, and often the best approach is to hire an expert early.
Here are the questions we ask customers:
- What are your sales and revenue by state?
- Where are your employees?
- Where is your office and any other property located?
Dollar amounts and property locations are important because each state has a different threshold when it comes to defining whether or not a bond (more on that in a moment) has been established.
It’s not something you can ignore. States pay attention. When you register with a government agency, the state receives your tax ID and other identifying information. This means that you are present in that state and your business will be monitored and prosecuted for any resulting tax liabilities.
For example, one of our clients was blocked during an acquisition last year because it was discovered that it was not respecting its remote workforce. It is therefore essential to register in each state where you have employees.