Likely, many small businesses did this without adopting comprehensive policies to make the arrangement workable for employees while protecting the company from potential threats and addressing various issues.
With the continuation of the pandemic, at least for the foreseeable future, it’s time for employers to adopt formal work-from-home policies or review existing ones to cover all the bases. This is especially important if you plan to permit remote work arrangements indefinitely.
1. What work standards should be set?
Do employees have to work 9 to 5 or merely put in a set number of hours each work day? Do they have to check in? Determine these and other formalities so that employees understand their responsibilities and that you can meet law requirements. For example, under the Fair Labor Standards Act (FLSA), you need to keep records of the time worked by hourly employees.
You may also want to regiment communications with and among workers. This could be weekly Zoom meetings or conference calls. Keeping employees engaged and connected with the company is more challenging when they work remotely and requires employers to craft measures that will be effective in this regard.
2. What employee costs will be covered by the company?
Employees can only work effectively from home if they have the right resources. This means space to work in with adequate lighting, the right equipment (e.g., computer and needed software), and sufficient connectivity. Are you going to pay for employees’ computers? High speed internet access?
What you decide to do depends on your budget and the needs of employees. If, for example, you choose to pay for some or all of the cost of employees’ internet access, it’s advisable to do this using an accountable plan. This allows reimbursements to employees for their costs to be tax-free to them (and exempt from employment taxes), while still deductible by the company. Details on using an accountable plan are in IRS Publication 463.
3. What are your state payroll tax obligations?
For purposes of federal payroll taxes, where the company and its employees are located isn’t important; the same rules apply regardless of location. But for state employment taxes, location is very important.
Employer obligations depend on whether employees are living and working in a different state than where the business is based, or whether the employee is living in the same state as the company but working elsewhere (perhaps as a temporary measure because of the pandemic). I covered a lot of this here.
Note: Congress has tried to create some uniformity here; nothing has been enacted.
4. What is the company’s liability exposure?
If an employee falls in her home office during work hours, is this a worker’s comp matter? Do you need to carry workers compensation for remote workers? If your employee is injured at home, will your workers’ compensation policy cover this? If employees are located in a state or states that differ from where the company is based, where do you need to obtain workers’ compensation? These and other questions should be answered to protect your business.
To get you started on answers, yes, you must have workers comp to cover remote workers (Texas is an exception). Best bet: Talk with your insurance agent or contact your state workers compensation agency. Here’s a map connecting you to state workers’ compensation offices.
5. How can you ensure data protection?
If employees are interacting with other employees and connecting to company data, cybersecurity protection is vital. Set the rules for employees to follow so that they don’t introduce malware into company files or otherwise compromise company data. For example, employees should be advised to use firewalls on the computers they use from home to block unauthorized access.
More information on cybersecurity is in a prior blog.
Find samples policies from:
These aren’t the only issues to address when with respect to a remote workforce. Do you want to transition to a permanent remote workforce? Some big companies, such as Square, Twitter, and Zillow, have done so.
Do you want or need to adjust compensation for those who choose to work from home (once returning to company premises is a viable option)? Some tech companies announced that employees who choose to remain remote workers after the pandemic will see their compensation reduced if they live in a location with a lower cost of living.
If employees continue to work remotely, what will you do with your current commercial space? These are decisions that small business owners need to make now.
Barbara Weltman is the founder of Big Ideas for Small Business, Inc., which publishes Idea of the Day. She is the author of J.K. Lasser’s Small Business Taxes 2020 and other books that inform the small business community of tax, financial, and legal information they should know about.