Rise in Telecommuting Creates Tax, Policy Issues


Telecommuting has grown significantly, but the associated benefits must be weighed by employers against the disadvantages and risks, a payroll analyst said May 15.

Sixty percent of employers let employees telecommute, which is triple the number from 20 years ago, said Bill Schmalle, a payroll analyst at McKesson Corp. 

Fifty percent of American employees hold a position compatible for telecommuting, and 38 percent telecommute at least one day a week, he said, noting that exempt employees are more likely to telecommute than nonexempt employees.

The growth of the Internet and other technology has enabled employees to work remotely more easily, spending less time at their worksite desks than in the past, said Schmalle, who spoke at the annual American Payroll Association Congress at National Harbor, Md.

Employers that allow employees to telecommute may save money on office supplies and office space and may be able to recruit workers from farther afield than would otherwise be possible, Schmalle said.

Telecommuting also may be considered an accommodation under the Americans with Disabilities Act, Schmalle said, noting that about 460,000 employees telecommute under the ADA.

However, working outside the office also may mean less frequent regular contact with or supervision of coworkers; potential risks, such as workers accessing the company network using home computers that may not be as secure as work computers; and the possibility that telecommuting employees may work extra hours because of the convenience associated with remote work, Schmalle said.

Policy Issues

Company policies should address issues related to telecommuting, such as how work hours are to be defined, Shmalle said, noting that an employee may agree to work from 8 a.m. to 5 p.m. at home but may still want to check emails at other times.

Employers audited under the federal Fair Labor Standards Act and state wage and hour laws often have problems maintaining hours-worked records for telecommuting employees or ensuring that telecommuting employees are taking required meal and rest breaks, Schmalle said.

The Fair Labor Standards Act and state wage and hour laws apply to telecommuters as if they were working in a regular office, he said.

Employees working from home offices, even part-time, would likely trigger nexus if they are in a different state from the employer, Schmalle said.

Wages paid by New York, Delaware, Nebraska, and Pennsylvania employers to employees telecommuting from other states are allocated to the employer’s state for tax purposes unless telecommuting is mandatory, Schmalle said.

For example, an employee living and working in Tennessee for a New York employer may be required to pay New York taxes, he said.

States with local income taxes follow the same rules as state taxes, and employees generally pay taxes on all income earned in the locality, Schmalle said.