Remote work has undoubtedly become one of the biggest workplace trends of the past few years, with scores of workers starting—and then continuing—the practice throughout the course of the COVID-19 pandemic.
As many companies begin implementing return-to-office policies, remote workers are continuing their call for flexibility.
"People realized how productive they could be [working remotely] and how much the flexibility was something that they appreciated," said Jacky Turnbull, chief people officer at Topia, a San Francisco-based talent mobility software company. "It's part of a mindset shift where it's not even a perk but part of a cultural norm that they're looking for from their employer."
But some employees aren't just looking to work from their couch a few miles from the office. Some are craving a nomadic lifestyle, taking advantage of the flexibility they feel they deserve. Working from a beach in Hawaii? Renting a house for a month or two in South Carolina? Traveling to Canada or Italy while on the clock? It's all part of a new working reality.
And sure, it sounds great for employees, but the problem is that some of these workers aren't telling employers about their plans.
The result? It's causing big headaches, big liability and big money for employers.
According to 2022 research from Topia, which surveyed about 1,500 employees, the majority (66 percent) said they do not report all days working outside their home state or country to HR.
"I'm seeing Fortune 100 companies wrestling with this issue; I'm seeing small companies wrestle with this issue," said Michael Semes, of counsel with BakerHostetler in the firm's Philadelphia office and a professor of practice at Villanova University Law School Graduate Tax Program. "And it can be a tremendous compliance burden."
It can cause "huge amounts of risk," he said, "because even though the employee may ultimately pay the proper amount of tax to the proper state, an employer has an obligation to withhold. What's the state going to do? Is it easier for them to go after 10,000 or 40,000 or 50,000 employees, or is it easier for them to go after the employer that is improperly withholding?"
In the U.S., tax requirements and laws vary from state to state and from jurisdiction to jurisdiction. Some states have a rule that employees have to be in a location for 30 days or more before they pay taxes there, whereas in others it's only a matter of a few days. And if employees go outside the country, that opens up another can of worms with regard to international work authorization and more.
Employers that are improperly withholding are subject to penalties—sometimes 25 percent to 50 percent of the unpaid tax, Semes said—and interest.
"Employers have the risk and incentive to get it done right," Semes noted.
A Growing Issue
As remote work has surged over the past few years—statistics from job-search site Zippia, for instance, show that 26 percent of U.S. employees now work remotely, a figure that's only likely to grow—employers are already struggling with how to manage remote workers. There's onboarding, employee connection, tax issues and more. But the issue of employees working from different locations remotely without telling their employers—or "stealth employees," as some media outlets call them—is a bigger problem, since employers are left out of the know.
It's not to say these issues haven't been around since before the pandemic, but the public health crisis—which led to flexibility and remote-work options in spades—has certainly put a big spotlight on them, Semes said.
Aside from tax complications and significant penalties, there is a reputational risk for employers, Semes said. "If they don't withhold properly and then they're caught, they don't want their name on the front page of The Wall Street Journal or The New York Times."
What Employers Should Do
There are a few important things employers should do, experts say. First, make sure company leaders—from HR and legal to individual managers—are aware of the company's rules around remote-work policies. Having firm guidelines in place and understanding risk tolerances should all be part of the conversation. Company leaders also need to be aware of where all their employees are working, understand what the laws are in the state of their assigned office, and know what the laws are in the state where the employee is working, Semes explained. And they need to make sure they're withholding properly from the location in which their employees are working.
[SHRM members-only HR Q&A: What must employers consider when offering a work-from-anywhere policy?]
The other thing is to make sure employees know about the complications that arise when they work from other locations without telling their employer. Although employees are causing big tax and financial issues for their employers, most likely don't realize it. Sure, they might think they are getting away with something, but, generally speaking, the majority of workers don't realize they may be getting their employer into financial trouble.
"For a lot of workers, they're thinking, 'I've gotten my job done for the past two and a half years; why does my employer need to know if I'm in California versus New York, or I'm working in the U.K. versus Italy?' A lot of people aren't necessarily trained to think that way," Turnbull said. "They are saying, 'I'm getting my job done. Why does it matter where it's from?' The big conversation within the industry, and things that we need to educate people on, is that there are significant immigration and tax and compliance risks around this, for both the employer and the employee."
Employers should certify with employees where they are working and where they expect to be working every month, every quarter or whatever makes sense to the organization, Semes said. "That way, the employer has conducted some reasonable form of due diligence," he explained.
Turnbull also said technology can help by tracking or monitoring where employees are working from. "It's not to be very Big Brother and control anyone; it's to make sure that we're protecting the company and that we're protecting our employees and we're mitigating risks," she said, noting that surveys find employees are more comfortable with tracking if they understand why it's being done.
Although employees secretly working remotely from alternate locations is already a problem for employers, expect it to be an even bigger issue in 2023, experts say.
"I think 2022 has been the year of people starting to discover the problem," Turnbull said. "Now that people are more freely moving around the world and comfortable doing so, I think the floodgates have opened and 2023 is the year that we're going to start to feel some of these crackdowns, whether it's tax regulators or compliance officers.
"It's an issue that you don't necessarily want to be reactive to; you want to be proactive," she added. "We're already behind. So companies really need to pay attention to this."