As the number of coronavirus (COVID-19) cases continue to rise throughout the country and the impact of the pandemic on employers continues unabated, many employers and employees are exploring not only how to work remotely, but whether and where to work remotely. Remote work continues to be required or strongly encouraged in some areas, and remote work may also appeal to employers as they respond to employee concerns about in-person work and consider potential cost savings. However, businesses that either ask or permit employees to work remotely on a long-term basis should be cognizant of the numerous potential legal implications, as well as business concerns that these arrangements can create.
These concerns can result in significant unintended consequences when employees work remotely for an extended period in a different location than their pre-pandemic worksite. The issues discussed in this LawFlash are nuanced and frequently differ across jurisdictions. Therefore, we encourage employers to consult with counsel as they transition to long-term remote work programs.
Tax Payments
Businesses should be aware that remote work arrangements where an employee works in a different state (and in certain localities) than they worked prior to the pandemic, particularly if it is a location where the employer is otherwise not operating, may inadvertently trigger state payroll tax registration and filing requirements. These requirements can include having to adjust tax payments for an individual employee and potentially may subject an employer business to another state’s payroll tax regime. Generally, in jurisdictions that have a personal income tax, businesses are required to register and withhold tax wages of employees in that location if they meet the applicable threshold to register and an employee performs services in these states. However, there are exceptions that apply in certain states, including reciprocity agreements, convenience of employer rules, and COVID-19 payroll tax relief laws.
Remote work arrangements where employees work in states (and in certain localities) where an employer was not otherwise operating may also provide the state (and locality) with sufficient nexus to impose corporate income/franchise tax filing obligations and a potential corporate income/franchise tax liability. Note, businesses should also be aware that remote work arrangements where employees work in countries where an employer was not otherwise operating may trigger a Permanent Establishment or “taxable presence” in that country, and give rise to corporate income tax or other taxes on business activity in the country or tax jurisdiction. In some instances a protective tax return might be appropriate if there is a significant risk of triggering a taxable presence.
Leave/Wage Replacement Entitlements
Employees working in a different jurisdiction may be entitled to leave and wage replacement benefits that were not available in their pre-pandemic work location. For example, many jurisdictions have COVID-19 sick leave laws or had a paid sick and safe leave law in place before the pandemic that would apply once an employee worked a certain amount of time in that jurisdiction. Similarly, some states have statutes providing for extensive time off, including paid time off, for pregnant employees, family leave for an employee to use after the birth/adoption of a child or to care for a sick family member, school visits, bereavement leave, caretaker leave, and jury/crime victim leave, among others. Most of these laws apply based on where an individual is working, and employers should be aware that many states have specific notice requirements that require employers to provide information about employee leave rights to all people working in that jurisdiction. In fact, some jurisdictions require employers to affirmatively include information on sick leave accruals and balances on paystubs or provide this information to employees on a regular basis. Additionally, some jurisdictions require payout of accrued paid time off upon separation of employment. These requirements can create additional obligations for employers, particularly if an employee working from home requests to take time off for a reason related to COVID-19.
Expense Reimbursement
The federal Fair Labor Standards Act (FLSA) prohibits employers from requiring an employee to pay the cost of items, including maintenance of the items, required for their job if doing so would reduce the employee’s pay below the statutory minimum wage and overtime rates. Additionally, certain jurisdictions, specifically including California and Illinois, have statutes that require employers to reimburse employees for workplace expenses. For an employee working remotely, these expenses may include some portion of home phone and internet costs. Other states may indirectly require employers to reimburse expenses under the theory that a failure to reimburse employee expenses is in effect an unlawful deduction from wages.
Wage and Hour Issues
There are myriad wage and hour issues that can arise concerning remote work.
Off the Clock/Timekeeping/Breaks: Accurately tracking hours for hourly remote employees can be an onerous requirement for both employees and managers. However, there can be significant liability if an employee is working “off the clock,” particularly as managers may be less able to control and closely monitor work hours in a remote work environment. Similarly, many jurisdictions have strict rules on when employers must provide meal and rest breaks to employees, including remote employees.
Minimum Wage/Overtime: Certain states and cities have higher minimum wage requirements that apply to all employees working in that jurisdiction, which may not have applied in the employee’s pre-pandemic work location. Further, some jurisdictions have daily overtime pay laws, require premium pay for hours worked on holidays or for split-shift/spread-of-hours schedules, or have mandatory day-of-rest laws. Additionally, some jurisdictions have restrictions on when employers can make changes to employee schedules, including prohibiting various call-in pay practices. These laws can result in less employer flexibility in making last-minute changes to employee schedules or even require additional payments to remote employees that managers may not be aware are due.
Exempt Employee Issues: For exempt employees, the basis for their classification typically rests on the duties they perform and the salary they earn. Employers should ensure that exempt employees continue to perform primarily exempt tasks while working remotely. Additionally, many states have minimum salaries that must be paid to the employee above and beyond the thresholds set forth in the FLSA and its corresponding regulations. For example, an exempt executive or administrative employee who is paid at or near the minimum salary threshold of $35,568 under the FLSA may not be exempt under state or local law if they now live or work in a jurisdiction with a higher minimum salary threshold (such as California or New York City, where the mandatory minimum salary for certain exempt employees is more than $50,000).
Wage Notice/Wage Statement Requirements: Many jurisdictions have specific requirements for information that needs to be included in employee wage statements or paystubs. As the penalties for failing to provide accurate wage statements can be significant, employers should review the wage statement rules in place in the jurisdiction where the employee is working to confirm the employee’s current wage statements are compliant in that jurisdiction. Additionally, some jurisdictions have mandatory wage notice requirements that must be provided to new employees upon hire. While employers generally do not need to provide these notices to a current employee that transfers to a new location, if the business is hiring a new employee who will work remotely for an extended period before commencing in-person work, the wage notice requirements from the employee’s home jurisdiction likely will apply.
Training Requirements
Certain jurisdictions require that employees and/or managers working in that location receive mandatory training, frequently on safety considerations or sexual harassment prevention, which can be triggered when an employee is working remotely from a new location.
Immigration Compliance
Employees on certain immigration visas may have assigned work locations. If such an individual is working from a different location, potentially even including working from home, it could impact their work visa. While certain work visas generally permit an individual to work from home in the same commuting area as their assigned work location for at least a short period of time, other visas are not as flexible. Work-from-home arrangements and relocation for employees working under visa status should be carefully reviewed in advance.
Business Certification/Licensing
Many businesses have specific certification requirements for the business to operate in a specific jurisdiction. Similarly, employees in certain fields may have business licenses that are jurisdiction specific or require new registrations. Employers in industries that require individuals to be registered or have certain licenses, such as certain financial services providers, legal institutions, and medical providers, should confirm that all appropriate certifications and registrations are in place before approving long-term remote work for an employee in a new jurisdiction.
Confidentiality
One oft-forgotten issue when it comes to remote work is the challenge in maintaining confidentiality over company documents and information. This challenge is often exacerbated when there are multiple individuals working from home in close proximity to one another. While having a private home office can alleviate many of these concerns, numerous employees are unable to work in private during the COVID-19 pandemic, as other household members/roommates may also be working from the same location. In addition to being a best practice, confidentiality is often required by statute, such as under HIPAA, state law (California law requires employers to give employees notice about privacy rights), or various fiduciary/financial obligations. Failure by an employee working remotely to keep covered information confidential could potentially create liability for a business.
Employers should consider ways they can limit potential information breaches for employees with access to confidential information, such as reminding employees about the importance of safeguarding this information, instructing employees to limit their work with hard-copy documents containing confidential information, or offering to reimburse employees for safety measures they implement (such as locks on an office door).
Workers’ Compensation
Employers may be surprised to learn that in general, employee injuries can be covered under state workers’ compensation laws if the injury occurs in the course of employment, even if the injury occurs in the employee’s home where they are working remotely. Although employees generally have the burden to demonstrate that their injury is work related, courts have found that where an employee was injured while working from home, that injury may be compensable despite the employer’s lack of control over the circumstances and work-from-home location.
In addition to the legal concerns, many employers struggle to effectively performance manage employees who are working remotely full-time. Employers should consider taking proactive steps to foster teleworking employees’ productivity, including the following:
Managers may be more comfortable addressing poor performance and giving feedback on areas of improvement during the course of day-to-day in-person conversation. Further, some managers may feel they do not have the same visibility into the employee’s workflow while the employee is working remotely and may be hesitant to issue written constructive criticism. Where employees are working remotely for an extended period, employers should ensure that their performance management and evaluation protocols are effective in documenting and addressing performance issues of remote employees.
Although there is research showing remote work (or partial remote work schedules) can increase employee productivity and well-being, employers who have implemented or expanded long-term remote work programs during the COVID-19 pandemic should be proactive in addressing the ways that remote work can create workplace complications and litigation risk.
Return to Work Resources
Morgan Lewis has developed many customizable resources to support employers’ efforts in safely conducting work during the COVID-19 pandemic. These include sample remote work agreements and communications as well as tracking of state and local orders on remote work requirements and essential/nonessential work, and remote work as an accommodation. We recommend that businesses considering or maintaining broad remote work arrangements have qualified counsel review those arrangements to help identify risk and prevent potential liability, particularly given the unending complications presented by the COVID-19 pandemic.
Sharing insights and resources that help our clients prepare for and address evolving issues is a hallmark of Morgan Lewis. To that end, we maintain a resource center with access to tools and perspectives on timely topics driven by current events such as the global public health crisis, economic uncertainty, and geopolitical dynamics. Find resources on how to cope with the globe’s ever-changing business, social, and political landscape at Navigating the NEXT. and Coronavirus COVID-19 to stay up to date on developments as they unfold.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Chicago
Stephanie Sweitzer
New York
Cosimo Zavaglia
Leni Battaglia
Daniel Kadish
Orange County
Carrie Gonell
Silicon Valley
Michael Schlemmer
Washington, DC
Shannon Donnelly
Sharon Masling