COVID-19 almost instantly reshaped the traditional workplace. Then employees realized that if they were working remotely anyway, why not be near distant relatives or on the beach? As the pandemic continues, companies field daily requests to make temporary remote working permanent, and to allow employees to live anywhere while working from home. From the extreme of “working nomads” without a physical home, to employees moving outside large-city headquarters regions, individuals are asking to move in-state, across the U.S., or abroad to continue working remotely. Entire nations are trying to seize opportunities as countries such as Greece and some island nations in the Caribbean now offer longer-term visas.
But is the reality of allowing employees to relocate as advantageous to employers as it seems? With states adjusting their laws in reaction to COVID-19, the shifting legal landscape is changing at an accelerated rate. Employers should be aware of the myriad issues occurring with remote work, and seek proper legal advice before allowing employees who work remotely to relocate. Only one working nomad on an employer’s payroll can result in serious and expensive consequences.
Labor and Employment Implications
Countless labor and employment implications arise when an employee relocates. The employment relationship is governed largely by the laws of the state in which the employee actually does the work. For example, in Sullivan v. Oracle Corp., 51 Cal. 4th 1191 (2011), the California Supreme Court held that California’s overtime and unfair competition laws applied to nonresident employees from Colorado and Arizona who were temporarily working in California for a California-based employer. It further held that these laws did not apply to work performed outside of California. Other examples include:
- Wage and hour laws regarding minimum wage, overtime, and child labor will be based on the employee’s new workplace.
- Job worth: Employers are navigating the implications of moving from high- to low-labor cost markets and whether to normalize the pay to the employee’s new location.
- Safety: Employers will be required to obtain workers’ compensation insurance and comply with all workplace safety laws.
- Employee benefit laws regarding paid time off, sick leave and medical leave, pensions, childcare benefits, and insurance will be based on where the employee works and lives. Health plan options and costs can vary based on the new jurisdiction.
- Hiring laws are based on the location from which the employee is recruited. For example, an employer can ask about salary history in Minnesota, but not in California.
- Anti-discrimination laws vary from state to state, and in some cases county or city laws will apply.
- Equal pay laws vary:
- The California Equal Pay Act bans employers from seeking the wage rate history of job applicants (though employers can rely on information voluntarily disclosed by applicants), requires employers to provide wage information to applicants upon “reasonable request,” and requires employers with over 100 employees to file an annual pay data report with the state.
- Colorado’s Equal Pay for Equal Work Act (EPEWA) is a new, far-reaching law that bans employers from seeking the wage rate history of job applicants, requires heightened pay transparency and job posting requirements, provides a private right of action, and limits defenses for employers.
- The Washington Equal Pay and Opportunities Act bans employers from seeking the wage rate history of job applicants (unless certain circumstances apply), requires employers to provide wage information upon request to applicants who have received offers, and requires heightened transparency.
- Many states do not have an equal pay law.
- Protected classes vary by state. For example, depending on the locations involved, an LGBTQ employee who moves from one state to another may gain or lose protections that are not provided under federal laws.
- Non-compete agreements and other employment agreements are governed by state law. A move to a different state could invalidate the non-compete entirely, or change the effectiveness of geographic limitations.
Tax law is filled with nuances on state and local levels, and myriad unknown variables affect how tax law applies to an employer—not only payroll or other employment taxes. Sophisticated tax advice is essential before allowing an employee move. The two biggest tax items of which employers should be aware are nexus and withholding issues.
- Nexus. The standard for imposing state income and sales taxes requires a “substantial nexus.” Under certain circumstances physical presence may constitute a substantial nexus in one state, but not in another. An employer must adhere to each state’s legal framework, and properly apply its apportionment rules. While some states have enacted COVID-19-specific nexus rules and guidance, these rules are not uniform, may provide selective relief, and have varying expiration dates.
- Employee withholding. Many states require employers to withhold funds from paychecks based on the employee’s residency. However, state regimes vary. For example, New York has a “day one” rule based on mere presence. This day one regime requires withholding for nonresident employees who are paid wages for services performed within the state and does not provide a grace period under certain circumstances. As is the case with nexus, some states are implementing their own COVID-19-specific withholding rules.
Corporate Law and General Business Implications
Corporate law implications can range from business registration requirements to specific rules that could alter an employer’s nonprofit status. Because the relocation of even a single employee could have far-reaching consequences, employers should make sure they are well-informed.
Non-legal business decisions are also worth considering. For example, if an employee relocates from a large city to a rural town, the employer can choose to lower the employee’s wage (outside of employment areas that legally require certain wage scales). Having the proper legal advice can facilitate such decisions and keep employers abreast of smart business opportunities.
International Travel and Relocation
An increasing number of countries are declaring themselves havens for working nomads. With nations offering sandy beaches, high-speed internet, and special nomad visas, what could go wrong? As it turns out, a lot.
International remote work presents a drastically different landscape compared with domestic remote work. A nomad visa will not protect ill-prepared employers (and employees) from suffering serious and expensive consequences. Employers may inadvertently create a tax nexus in the foreign jurisdiction. Intellectual property protections vary. Wage/hour, employment, discrimination, and termination laws are different. If an employee is traveling internationally or working remotely from another country, it is imperative that employers seek advice from sophisticated attorneys.
Work from Anywhere, the Business Perspective
Employers have a distinct risk-reward interest in pursuing a work-from-anywhere practice. The employer has a fiduciary responsibility to act in the best interest of multiple stakeholders, including customers, employees, suppliers and shareholders. This is no small task as good stewards of people and other resources try to make good decisions for the benefit of many. While this is not an exhaustive list, leaders, as representatives of the business, will take into account these fundamental interests:
- Tax and legal compliance
- Business continuity and performance
- Workforce creativity, collaboration, and connectivity
- Policy and practices consistency
Work from Anywhere, the Employee Perspective
Employees also have a distinct risk/reward interest in an employer who encourages a work-from-anywhere culture. The employee is faced with unique challenges of balancing personal health, home/family responsibilities and the obligations associated with work hours, work product, and work results that benefit customers and the business. Employees are highly valued resources, without whom the company is not in business. However, while employees may be able to understand the employer interest, their interest is much different. While it is not an exhaustive list, many public and private research surveys indicate that employees frequently mention these fundamental concerns:
- Personal well-being
- Flexibility to manage work hours
- Convenience of work location
- Resources that promote work productivity
Guidance for Employers
In summary, we suggest employers deliberately and comprehensively consider the extent to which they will promote a work-from-anywhere practice. We encourage these affirmative policy and practice statements as a starting point:
- The employer welcomes solutions that properly balance employee need for flexibility and the company’s need to achieve business goals.
- Alternate work locations in the same country for more than four weeks per calendar year must be requested by an employee in good standing and authorized by the company. Alternate work locations in a different country are subject to the existing global mobility policy and will only be authorized for circumstances aligned with business opportunity.
- The employer and the employee mutually agree to engage in frequent and transparent communication as necessary for legal and tax compliance by jurisdiction.
- All job roles are not eligible for alternate work location. (However, employers would be wise to invest in tools and technology that promote flexible work solutions where possible.)
- Competitive pay varies by geographic location, a practice already in place at the company. When the employee requests approval of an alternate work location, it is with the understanding that base pay will be adjusted accordingly until a different work location is authorized.
The most successful leaders making these decisions will remain true to their core business, honor established values, and respect the culture of people and their work.
Michael Droke is a Seattle-based Partner in the law firm of Dorsey and Whitney; Andrea Mallorino is an attorney in the Minneapolis office of Dorsey and Whitney; Mark Englizian is a former HR leader at three Fortune 50 companies and now a senior strategy adviser at The Institute for Corporate Productivity.