A growing trend in recent years has been for employees to work part time or full time at home or another remote location. In the midst of the coronavirus pandemic workplaces that have traditionally conducted business in one central location are now finding themselves experimenting with conducting business remotely. Whether due to government mandate, increased flexibility, or both, from home and remote employment is a trend that will likely continue to grow after the smoke from the pandemic clears.
If I hire someone for a remote position are they an employee or an independent contractor?
One thing to keep in mind when hiring for or creating a remote position is that the person you hire will not be an independent contractor by virtue of their remote position. To determine if a worker is an independent contractor or employee the IRS employs a balancing test.
The test weighs three factors:
1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
State law and taxes
The California legislature recently passed Assembly Bill 5, which reclassifies gig workers as employees. The legislation was based on the Dynamex Operations West Inc. v Superior Court of Los Angeles decision from April of 2018. The test derived in the decision, which the legislation is based, assumes a worker is an employee unless the hiring company can prove the following three things:
- The worker is free to perform services without the control or direction of the company.
- The worker is performing work tasks that are outside the usual course of the company’s business activities.
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Provided your remote worker is an employee – you will want to determine which state’s employment laws will apply to them. If your remote employee will be working exclusively out of the same state you operate your business from, that state’s laws will govern. If your employee will be working remotely from a state different from where your business operates or multiple states, you will need to consult the laws of each state. Different states have different laws regarding employment issues such as minimum wage, workers compensation, and overtime. You will want to contact an employment attorney familiar with the laws of the state your remote employee will be working out of.
For tax purposes many states follow the physical presence rule. Under the physical presence rule the employee pays taxes in the state that the work is performed. Not all states employ the physical presence rule. In these states the employee may be subject to taxes in both the state the company operates out of and the state in which the employee resides. It is important to consult a tax attorney to determine which laws apply to you.
Federal law also applies
Having remote employees can make keeping compliant with certain federal labor and employment laws tricky. One such law is the Fair Labor Standards Act (FLSA). The FLSA sets requirements for minimum wage, overtime, record keeping, and employment of minors. When working remotely, especially from home, the line between on the clock and off the clock can get blurred. It is important for employees to keep records of the time they spend working while working remotely. It is also important for employers to realize that just because an employee does not have to leave their home to do their job they are not always on the clock. If the remote employee is not exempt from the FLSA the employer must still keep track of hours and observe overtime laws.
Aside from the FLSA their are many other federal labor and employment laws that don’t go away once a position has been moved remotely. Remote employees are given the same protections as on-site employees under federal laws such as the Family and Medical Leave Act (FMLA), Americans with Disabilities Act (ADA), Equal Pay Act, Age Discrimination in Employment Act (ADEA), and the Pregnancy Discrimination Act.
Your employees home may be their castle but do they have a moat?
Allowing your employees to work remotely might decrease the chances that you or they contract COVID-19 but it may expose your business to a different type of virus. As you move your operations remotely your business’ exposure to cyber attacks and data breaches may increase. Be sure to have your remote employee work from a secured wireless connection or if using public WIFI use a virtual private network (VPN).
The United States Securities and Exchange Commision has issued guidlines to help protect you and your clients from data breaches. Some of their best practices include:
-Scheduling periodic assesments of your technology systems
-Developing a prevention, detection, and response plan
-Creating written policies and procedures
Having employees work remotely may be a temporary safety measure you are taking today, but it could also be a strategy to make your operation more flexible and nimble moving forward. As remote employment becomes more viable, and in some instances nessacarry, the laws that govern it will continue to evolve. Be sure to check with an employment or tax attorney before implementing policies that could expose your business to liability.
This post was authored on March 17th, 2020.
At the time of this post Jesse Barth is a 2L at Penn State Dickinson School of Law. Prior to enrolling in law school Jesse served in the United States Marine Corps conducting air defense and embassy security. Jesse now lives in Central Pennsylvania with his wife, daughter, and dog pursuing a career in criminal defense while maintaining an interest in all things pertaining to individual liberty.
Sources:
Federal Protections: 7 Laws That May Apply to Remote Workers
https://www.dol.gov/agencies/whd/flsa
https://ct.wolterskluwer.com/resource-center/news/cybersecurity-best-practices
https://sbshrs.adpinfo.com/blog/remote-worker-faqs-how-to-comply-with-employment-laws
https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee
https://www.thebalancesmb.com/pay-tax-and-work-laws-for-remote-employees-4795810
https://www.forbes.com/sites/chriscarosa/2020/02/27/will-californias-ab5-law-gag-your-gig-retirement/#773b1c9d6518
https://www.investopedia.com/california-assembly-bill-5-ab5-4773201
Photo Source:
https://www.pexels.com/photo/close-up-photography-of-woman-sitting-beside-table-while-using-macbook-3178818/
Jesse,
You’ve written about a topic that must on many employers’ minds. I think this post serves as a useful checklist for employers who wish to transition their employees to remote work. Many employers will likely find this transition to be unfamiliar. As you note, this unfamiliarity could expose them to liability under the FLSA and other laws, From a writing style standpoint, I especially like the wordplay in your use of “virus” toward the end of your post!
I think this is a really good starting point for small businesses that are struggling to make the change to remote work. Personally, I wonder if productivity remains the same or similar when work is moved in the home and how well the metrics to evaluate productivity translate.
Jesse, this is a great post given the current climate around the world. The sudden, dramatic shift for most companies to operating remotely undoubtedly has brought numerous challenges to small businesses. I believe your post provides very valuable information to organizations that are struggling with this currently. You have done a good job analyzing various elements that need to be considered by some businesses that are struggling with the shift to remote operations.