Here's a hypothetical scenario that isn't all that hypothetical.
Your company is based in Chicago, with a big office that now sits empty, as nobody is eager to go back to work until there's a vaccine for Covid-19.
An employee who has always wanted to move back to his hometown in Ohio surprises you with an email letting you know they are relocating to Cleveland next month.
The next day, you get an email from one of your inside sales reps letting you know that she has decided to relocate to North Carolina.
This is the new normal in the Covid-19 pandemic era.
It's happening to companies around the world, as people have become untethered from the office, gotten a taste for working remotely, and decided that they can move anywhere in the world as long as they've got good Internet connectivity.
The Challenge for HR and Finance Departments
In the United States, and in most countries no doubt, this creates problems for HR and finance departments. To help you navigate the issues, here's a partial list of things you'll need to consider when an employee picks up and moves to a state where you don't have an office.
Business Registrations -- In most states, the mere presence of an employee working in the state, triggers the requirement that the employer be registered to do business in the state. There are some exceptions, such as when the employee's presence is temporary or transitory. In addition to registering your business with the state, you may need to register with the local municipality (e.g. city, county) where your employee has moved. Expect to pay a fair bit in initial business registration fees, as well as some annual fees and filing obligations.
Workers Compensation Insurance -- When you have an employee working in another state, the employer may need to register for and obtain workers compensation insurance in the state where the employee is performing the services.
Unemployment Insurance -- Having an employee working in another state generally requires that the employer register for and pay the unemployment insurance premiums for the employee through the state unemployment insurance program where the employee is performing the services.
Insurance Policy Coverage -- Many of your existing business and health insurance policies may need to be updated to reflect the expansion in the list of places where you employees work. You may also need new coverage in some cases. For example, having a remote worker in New York may obligate you to get a separate family leave insurance policy even if you only have one employee residing in the State of New York. Contact your insurance brokers to make sure you have the right policies.
Payroll Service Updates -- You'll want to get in touch with your payroll service to have them add the new tax jurisdictions to your account. It will be important to make sure that the correct state payroll taxes are being withheld for your relocated employees.
Non-Resident Tax Obligations for Shareholders -- Having an employee working in another state can subject the employer to new income taxes, gross receipts taxes, as well as sales and use taxes. These new tax obligations can also be at the city or county level. This can result in your having to prepare and file additional state tax returns, with quarterly estimate payments and final tax payments due when you file. Adding insult to injury, the invoice from your tax preparer is likely to go up, due to the added complexity of your tax filings.
New Labor and Employment Laws -- With your employee now in a new state, there may be new labor and employment laws that apply. You'll want to understand these and make sure you are in compliance. Many clauses in a standard employment contract (e.g. regarding trade secrets or no-compete language) may not be enforceable in the new state.
Fines for Late Registrations -- Ignorance of your obligations won't get you off the hook if you don't get all the necessary registrations and licenses taken care of in accordance with the timelines required by the various government agencies. If you don't file on time, expect fines and interest to accrue.
Adjusting to an Increasingly Mobile Workforce
As you've learned, there's a lot to address when your employees decide they want to move to a new state and continue to work remotely, as they are doing now due to the Covid-19 pandemic.
For them, it's a simple move. For you, it's a lot of paperwork, new expenses, new risks and hassles you hadn't planned for.
There are even cases these days where employees have relocated to a new state but didn't think they needed to tell their employer about it. If you haven't done it already, you should send out an all-company email requiring employees to notify you if they've relocated.
While these moves will be a hassle for your business, you often can't say no to a good employee who insists on relocating.
Just plan on having a lot of conversations with your accountant, your tax preparer, your attorney, your payroll service and various government agencies in states your employees move to.
You're not alone. Many businesses will be joining you in the customer service phone queues.
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