Kshipra: Welcome to our next episode of Mobility via Podcast. Our KPMG covering a range of mobility topics from remote work to talent and business strategies, also looking at tax implications, just to name a few. In this episode, we will discuss the findings from a recent survey we conducted with the American Payroll Association. We’ll take a look at some of the key employer trends in the remote work world and what it means from an employment tax perspective. Joining me today are my colleagues, John Montgomery, a partner in an employment tax practice, and Anne d’Arcy, a principal who leads our Global Business Travel Practice. Welcome to you both.
Anne: Thank you. Hi, everybody.
John: Thank you. Hi, everyone.
Kshipra: All right, so why don’t we get this show on the road. John, I’ll start with you. Based on the 2021 Remote Work Multistate Payroll Reporting Survey that we just conducted, we found that more than 81 percent of employers will allows for some sort remote or hybrid work arrangement in the future. In your mind, what are the top tax and payroll issues that you see coming to the forefront?
John: Thanks, Kshipra. Certainly, this is a very large topic that everyone is dealing with. I think the largest issues we’re seeing in payroll are knowing where our employees are, whether that’s going to be in a full remote or hybrid model, and knowing where they are, not just that they may be remote working from home, but they could be remote working from anywhere that may not be in their primary residence. And the importance of knowing where their employees are so they could then take the next step of determining what the payroll issues are.
On the domestic side, there are a number of states that have specific rules around telecommuting and de minimis thresholds that are going to require employers to source wages and withhold if the employee is working there a number of days or if offices are open and they’re working from home for their own convenience, whether a telecommuting regulation would apply. I think both domestically and internationally, when we’ve got employees that are working remote, we also have to take into consideration a lot of non-payroll issues around state nexus, permanent establishment, credit issues, and a number of other topics that are a result of our employees working remotely. So knowing where they are and how to gather that information is going to be a key strategic point for employers in the future.
Kshipra: That’s excellent advice. In fact, you touched upon something that’s been top of mind in all of our discussions so far, it’s the New York Convenience of the Employer Rules, and some of the other states have it as well. What guidance would you give to our listeners today on how should they improve or approach reviewing their obligations and managing the complexity around different state regulations as it relates to payroll withholding?
John: Sure. And the telecommuting also known as Convenience of the Employer Rules are difficult to navigate. Prior to 2020, there were five states that had these rules in place. New York is the most aggressive. They’re the ones that most people know about. And just as a basic background, it states that if the employee is working from home for their own convenience rather than for the convenience of the employer, than unless the employee’s home office can be deemed a bonified work location the employer is going to have to continue to consider that workday at home as if it were worked in New York for sourcing and taxation purposes. So an employer really will have to, when we’re looking at our overall policy and strategy, will have to work the tax rules into that to say if we are going to be allowing hybrid and remote work, we need to go through the rules in New York to see do we need to start splitting up wage allocations between the two states if the employee’s home office is a bonified work location? Or if not, we need to source it and withhold a hundred percent in New York, but we probably need to involve our HR, and marketing, and recruiting, and make sure we’ve got a lot of FAQs and we’re explaining this to employees.
Of course, in the tax world, we’re very familiar with these rules, but outside of the tax world, most employees are not in tune with the tax regulations that, unfortunately, an employer has to follow the nuances of which could affect the employee’s pay. And while we specifically often talk about New York, there are four other states that have telecommuting and convenience rules.
In addition, there are a number of localities that have non-resident and telecommuting regulations. When we look to Ohio, Philadelphia, Wilmington, St. Louis. So although New York is kind of at the forefront of these convenience rules, they certainly are not the only one, and this complexity throughout the country is becoming more and more difficult for employers to manage which is why the strategy process and implementation of knowing where our employees are is so important.
Kshipra: Very well said. Anne, I’ll ask this question of you. I know you spent decades in helping companies manage their business travel risk within the US and outside. And they finding, just like Monty was talking about, we’re finding there’s a lot of commonality between the risks that existed in the BT world and now that are coming up in the hybrid world. What practical guidance would you share with our listeners around policy threshold processes, etcetera, that they should consider.
Anne: Thank you aging me, Kshipra. (Laughs) I do feel like I’ve been working for decades. I agree totally. A lot of these issues are kind off crossover with what companies have been dealing with in relation to their business travelers. And I would say that the companies that already have BT programs in place are kind of embracing what John talked about, the payroll compliance, etcetera, around remote and hybrid workers, better than some of the clients who have not.
A lot of the companies we’re talking to at the moment are coming to us struggling with their policy and process, but when we actually talk to them, we realize they actually have, unbeknownst to themselves, decided on what their policy and process is. They just are overwhelmed by what’s going on, the pandemic, senior leadership trying to kind of release statements on what our future effects really are going to be.
So really, I think if they just stood back, looked at what they’ve been doing today, document that as their policy and process, they have to start somewhere, and then try and be consistent with that. So a lot of companies are still allowing exceptions, and exceptions have become the norm during COVID. I think we now need to start looking at, right, we have a kind of prefill in here, let’s document what our policy and process has been and let’s apply that consistently going forward as we kind of start getting more into how we operationalize that.
Kshipra: Yes, that makes a lot of sense and that’s excellent advice. There is one more aspect that, I think, that has become across in our discussions with a number of companies, is just the sheer volume that they’re dealing with. Right? Business traveler, again, was limited to a subset of the workforce in the organization, and now obviously hybrid work situations are pretty much applicable to every person in the organization.
It is very difficult, once they do have their policy and processes in place, it is still very difficult to manage it on a one-off basis or manual basis, or use the same kind of processes that they were using in the world before hybrid became the norm. So what would be your recommendations? And what are you seeing around technology-based solution that are helping our companies manage the risk as it relates to hybrid work situations, and connecting that to payroll systems, and reporting and withholding requirements?
Anne: So I’ll go back to the companies that already have been doing something around business travelers, and I think looking at them, they are looking to leverage what they already have in place from a tracking perspective. Right? John’s talked about tracking, you’ve kind of mentioned tracking, that is kind of key to definitely the state-to-state piece. Right? So a lot of those companies have kind of either customized or used what they have in place to now manage remote workers. It probably requires a bit more effort from the employee because with business travel, as we know, we could get the corporate travel information directly and not have to bother the employee.
So they’re dealing with that, but what they’re missing is this kind of employee intake. Right? So when we’re looking at an end-to-end solution going forward, having that employee piece on the front end, which we’ve seen some of the companies like Workday come out, and they’re kind of starting to build that in, and other companies are starting to build that internally or we’re building it in our technology as well. So that’s kind of one of the key elements that is coming into play now, this employee front end where they can go in and say, “I’m hybrid. I’m this many days a week, or I’m this percentage in the office and this percentage at home.” So that’s definitely coming as an end-to-end, and that definitely will help with the US state-to-state piece.
Internationally, I think it’s always more around getting the remote requests in. Figuring out, putting them through the different stakeholders to get to a yes or no. So again, from a technology point of view, a lot of that can be automated. Right? So if a company has their policy and process in place, that intake from the employee where they say, “Hey, I am this percent. I want to go here from this state to this state,” you know, we can build technology around that to automate that response so it’s not clogging up the in-box of a lot of the client contacts we’re dealing with who are really overwhelmed.
And then from a tax perspective, obviously you can get a risk assessment which can also lead to automatic approval if there’s no risk involved with that remote work request. So it’s really around just getting something in place that’s helping these requests or the hybrid kind of state-to-state allocation just moving through your systems in a way that’s streamlined, an easy employee experience, and that helps facilitate the employer compliance.
Kshipra: That makes a lot of sense. Just to summarize, there’s intake process, there’s knowing where employees are, and then linking both those pieces of information to actually payroll allocation from appropriate withholding. That’s great. On that note, actually, I want to ask you one closing question. If you had to each give one practical suggestion to our listeners today, what would that be? How should they manage payroll obligations as it relates to hybrid or remote workers? Monty, you want to go first?
John: Sure. I think practical suggestions, I think one, make sure you’re involving kind of the broader tax department in decisions so that you can determine are we registered for taxes in these states, do we already have nexus, what are the implications of now having employees working hybrid or full-time remote in these other locations, whether domestic … And then certainly the issues around international and trying to get that information beforehand.
And I think also as a practical suggestion, just a lot of FAQs and information to employees because you want them to understand the rules and the obligations that we as an employer have to do because it is affecting their paycheck, I think especially in the US where you have employees who might be working remotely or in a hybrid situation in a state that has a lower or no tax. It tends to cause a lot of questions if we don’t have that information out to them in advance.
Anne: Yes, I think from my point of view, I think it goes back to what I said earlier. You know, document what you’ve been doing. That can form the basis for your policy going forward. Don’t be overwhelmed. I think the quicker you get your hands around it and kind of get these operational processes in place, the better. Setting up payroll can take time, so back to Monty’s point on the FAQs, you know we’re in tax season now, a lot of our clients have communicated what they actually did do for their prior tax year so employees know when they’re going to file their tax returns. So I think it’s just documenting policy and then this bit around employee communication is key so that they’re not inadvertently getting themselves or you, as the employer, in trouble.
Kshipra: Excellent advice. Thank you so much. Thank you, Anne. Thank you, Monty, for joining us today. In future episodes we’ll continue to address top of mind issues of interest to our listeners. In the meantime, we would love to hear from you. If you have thoughts on today’s episode or ideas for future episodes, please send us an email at us-taxwatch@KPMG.com One final thanks to our audience for listening in today. Thank you.