Payroll Taxes for Remote Employees: Implications Employers Need to Know

Due to the COVID-19 pandemic, remote work has become the norm. As a result, your employees could potentially work from anywhere in the country. While remote work may be convenient, one drawback is it could expose your business to more payroll implications. It's crucial that your payroll system adjusts to this new situation, so your small business avoids costly trouble with the government.

Payroll taxes for remote employees

The tax headaches of working remotely start with payroll. It can already be a headache when all your employees work on-site at your business. However, it starts to get even more complicated when an employee works from home in a different state. Depending on the state laws, your business may need to register to collect payroll tax for where the employee lives and handle the proper withholding for income paid.

When employees had to work in person occasionally, this at least meant your business only had to track payroll and income tax laws for states within commuting distance. However, with completely remote workers potentially living anywhere in the country, your payroll system should be prepared to manage taxes for all 50 states.

Not only does this mean tracking different state and local tax rates, but you also need to follow all the rules for benefits, like whether an employee must contribute to New York's paid family leave program. If your small business doesn't handle your tax filing properly for out-of-state workers, you could face audits and monetary penalties.

A constantly changing challenge

Another of the most common tax headaches of working remotely is the constantly changing payroll tax laws. These past few years, we've seen a lot more adjustments than usual as governments respond to the rise of remote workers. States that rely on taxes from major employers have not been happy to see those tax dollars go elsewhere due to remote work.

As a result, some have passed new laws to collect payroll taxes for employees working out of state. For example, New Hampshire sued Massachusetts because the Massachusetts government was aggressively trying to collect payroll taxes from New Hampshire residents who were working remotely for Massachusetts-based companies.

On top of tracking laws, you also need to keep track of your out-of-state workers. If they are working from home, they are more mobile than before. You need to figure out where they're located, both their home as well as if they travel. If they spend considerable time in another state, like for an extended visit, this could trigger payroll liabilities for your business.

Remote worker tax example

Let’s take a closer look at the tax implications of working remotely from another state.

In this example, one remote worker lives in New York, and the other is in California. Managing the tax headaches of working remotely can be complicated because an employer must comply with state and federal payroll taxes. Making mistakes can lead to financial penalties for your business.

In addition, with remote teams scattered across multiple jurisdictions, handling state tax withholding for remote employees while ensuring everyone gets paid on time can take time and effort.

For example, let’s say you have to figure out the rules on payroll tax for remote employees working in numerous states across the United States. Roll by ADP can help you manage taxes by automating deductions from employee wages according to the state tax laws and regulations of each jurisdiction.

Roll by ADP solves the tax headaches of working remotely by automatically updating and adjusting according to the web of changing tax regulations. Automating compliance and remittance of payroll through our platform frees up your time and mitigates the risk of tax penalties.

If you receive questions from your remote team about remote workers' state income tax or payroll contributions, you always have access to expert support.

New payroll tax solutions

If handling payroll taxes in this new environment sounds challenging, that's because it is. Working remotely has tax implications that are a considerable amount of work for small business payroll departments. Fortunately, in the same way workplace technology has improved to meet the needs of remote workers, so has payroll software.

Roll by ADP was designed for this new environment. It can automatically calculate, file, and remit payroll taxes for federal, state, and local taxes anywhere in the country. It can also easily adjust to a scenario where an employee must pay taxes to multiple state governments—like if they move to different locations during the year. Solving the tax headaches of working remotely lets you save time while also enjoying the peace of mind of knowing you’re compliant—whatever location your employees call home. The software automatically updates based on changes to small business tax laws for payroll. That way you don't have to spend time studying the latest bills from state and local governments.

The new normal of remote work

Remote work looks like it's here to stay. 39% of employees said they would consider quitting if their employers weren't flexible about remote work, according to a 2021 survey conducted for Bloomberg. This is an opportunity for tech-savvy business owners like yourself, as it opens the entire country for your talent pool.

The key though, is that your in-house systems keep up with the new challenges. By working with Roll by ADP, you can stay compliant and stop wasting time dealing with payroll tax for remote employees. See how you can effortlessly manage payroll tax filing with Roll.