?As more employers roll out hybrid work policies, there are many complex legal considerations to take into account. Hybrid work impacts tax compliance, reimbursement for work expenses and prohibitions against discrimination, among other things.
Workers and job applicants are pressing companies for hybrid schedules, and “addressing this tension raises a host of legal and practical considerations,” said Devjani Mishra, a lawyer with Littler in New York City.
Hybrid work means an employee works some days at the worksite and some days at home. Sixty-three percent of employers offer hybrid work opportunities to most workers, according to the Society for Human Resource Management’s 2022 Employee Benefits Survey.
For tax and legal compliance reasons, employees’ work and home locations need to be up-to-date and consistent across all of your organization’s systems, not just your payroll system. It’s helpful if offer letters and employment contracts spell out the hybrid model and the expectations for coming into the worksite.
Ten states and Washington, D.C., require employers to reimburse remote workers for necessary business-related expenses, such as office supplies and a portion of monthly bills for Wi-Fi, cellphone service and utilities. Each state applies different standards in this situation.
Tax Considerations
State corporate tax rates and unemployment tax rates vary. Some states have additional corporate taxes for things like paid family leave.
“Employers may expose themselves to additional corporate tax obligations, as well as registration requirements, by allowing their employees to work from a state where they do not otherwise operate,” said Adam Tomiak, a lawyer with Epstein Becker Green in New York City.
Income taxes on employee wages is a separate issue. Usually, employers withhold personal income taxes for the state where the work was conducted. People who work in a state they do not live in may be subject to income tax withholding for both states.
For example, if someone works at home two days per week and at the office three days per week and the office is in a different state from where the employee lives, that might be enough to create a business presence known as a nexus, triggering income tax obligations in the home state as well as the work state. During the COVID-19 pandemic, many states waived the nexus rule. However, employers and HR professionals need to be aware of any local updates that signal the end of the emergency period and re-establishment of the nexus rule.
Sometimes the payment of any wages for work in a state is enough to trigger employer registration and withholding requirements. However, most states enforce withholding requirements only if the employer meets a certain economic threshold, such as a certain number of sales transactions or a certain amount of total annual sales. Arizona, California, Indiana, Oregon and Virginia give employees credits on their income taxes when they work in one of those states and live in another.
Connecticut, Delaware, Nebraska, New Jersey, New York and Pennsylvania have “convenience of the employer” tests. Under this rule, for example, Connecticut imposes income tax on a person working remotely in Rhode Island for a company located in Connecticut, if the person works remotely for their own convenience. The tax withholding would occur only in the work state if the work happens remotely for the employer’s convenience.
Exempt vs. Nonexempt
If nonexempt employees are working a hybrid schedule, it can be more complex for the employer to comply with state and federal wage and hour laws. Depending on the location, such compliance includes following rules governing safety, overtime pay, minimum wage, required rest and meal breaks, and record keeping for hours worked.
“Employers should first review their policies to ensure they support Fair Labor Standards Act (FLSA) compliance, including with respect to record-keeping requirements for nonexempt employees and the advance approval of overtime,” Tomiak said. “Employers may also consider the practical aspects of remote work for nonexempt employees, and whether employee access to remote working tools can be monitored to track the accuracy of timesheets.”
Tax rules and FLSA requirements are important to consider when an employee moves to a different state and remains in the same job.
“When employees, whether exempt or nonexempt, move to new jurisdictions, they may become subject to an entirely new legal framework,” Tomiak said. “With respect to nonexempt employees, this may include requirements with respect to the rates of pay, the calculation of overtime, and the timing of and information provided on paychecks.”
A move to a different state could require changes to the time-keeping tool the employee uses to track work hours. In some states, overtime is calculated by the day, while in other states, it’s calculated by the workweek.
Avoid Discrimination
You should make sure your organization’s decisions to permit or deny hybrid work arrangements don’t discriminate against people in legally protected groups. The hybrid work policy should avoid discrimination by race, religion, gender, age, sexual orientation, disability and pregnancy status. It’s probably not legal if the data shows there’s been unequal treatment or an adverse impact on workers in a protected group.
To avoid discrimination claims, it’s wise to have a written policy that outlines the criteria for determining whether to allow or refuse a request for a hybrid work schedule. Then make sure supervisors apply the policy in a consistent and fair manner.
With more employees working from home and interacting with co-workers via e-mail, text, videoconferencing and instant messaging, it’s important for companies to prevent online harassment and hostile online environments. Digital platforms can contain the ingredients for harassment lawsuits the same way that physical office buildings can. Any employee trainings and written policies that you have regarding harassment should make it clear that the same rules apply to in-person communication and online communication.