Friends, the sharing economy is alive and well—last night I used TaskRabbit to hang some shelves I Uber’d from Home Depot ahead of my Airbnb guests coming this weekend. The world of work is looking amorphous, it’s looking mobile, and even companies that aren’t “sharing” their way to the top are still seeing a scattering of their employees: Greg works from home two days a week, Jenny lives halfway across the country (and perpetually in Google Hangouts), and Bob makes a commute from New Jersey to New York each and every morning.
We’re in a golden age of workplace flexibility—but also a golden age of tricky, tricky payroll processing. One of the chief culprits? Live and work state taxes, thanks to scores of employees bouncing around the country as they work. HR has got to step up its game.
“There are so many variables when it comes to live and work state,” said Loren Downey, Director of Payroll at Namely. I sat down with her to chat about how HR and payroll professionals can stay on top of where people work, what taxes to file, and how to handle our new crazy world of work.
1. Know which states offer reciprocity and how they affect your business.
Reciprocity is one of those beautiful arrangements in tax law that just makes perfect sense—and it’s one Downey says employers should certainly have a handle on. States with reciprocal agreements allow employees to work in neighboring states without having to pay additional income tax withholdings—the employee only pays income taxes to the state with the higher rate, not both.
The following jurisdictions have some sort of reciprocal agreement with one or more states: District of Columbia, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Montana, New Jersey, North Dakota, Ohio, Pennsylvania, Virginia, West Virginia, and Washington. “But there are exceptions with all of this, which is what can make it confusing,” Downey cautions. Be sure to read up more on the specific agreements that affect your company. Better yet, if anything is unclear, Downey says to contact your state agency. “Really understand what rules and regulations play into your state.”
2. Track your employees’ live-in states by sending out biannual notes to keep HR updated.
Downey puts it simply: “Things go wrong when employees move.” Like a New Yorker leaving a sad trail of bank statements and cable offers with each and every apartment move, failing to stay up to date on employee addresses can make for messy data and worse, errors in payroll taxes. “For whatever the reason, either the employee doesn’t communicate to the employer or the employer doesn’t change that information immediately,” Downey says.
She recommends sending out a biannual note to employees to keep their addresses up to date with HR. It’s a simple enough step to work into your arsenal of reminders, and you’ll keep your data nice and clean as the year goes on.
3. Keep close track of all your in-state offices and which employees make home their place of work.
Work-from-home warriors enjoy more benefits than on-demand Eggo waffles—they have complete control over making a productive work environment. But your job as an HR professional is to know when the scale tips on their working hours and that home office becomes a satellite one.
“A company may not have an office in a particular state,” Downey says, “but if the employee works more than a certain percentage of time out of their home, then the employer really needs to find out where they should be paying the unemployment, and where they should be paying the state withholding.”
For those employees with unique working circumstances, check in on how many hours are spent where, and exactly where their tax payments belong.
4. Remind employees to actually look at their paystubs.
Direct deposit is a must in today’s digital world. By taking out the paper middleman, HR saves a ton on cost and employees are saved from one more item on their to-do list. Thing is, employees probably need a friendly reminder to actually check out their paystubs to make sure everything looks right. If there is an unexpected mistake—say, someone’s state of residency is misrecorded—how else will you find out before tax season comes?
“How many times are you looking at your paystub? You should, but how many times do you actually do it?” Downey asks.
She offers a nice reminder that despite our technological leaps forward—in both the sharing economy and in payroll—there’s always going to be a place for that human touch. “Make sure that HR are really closely aligning with a tax professional, working with a payroll provider, and keeping abreast of all of these small compliance issues,” Downey says. Like a fleet of Handy professionals banding together to make a house sparkling clean, we can make payroll just a little bit easier if we all work together.