Managing Distributed Workforces: Remote Payroll Taxes

Advances in technology have enabled employees to pursue more flexibility in their work. Flexibility in hours and location have become a key tool for attracting—and retaining—talent. Despite some pushback from organizations, distributed workforces, and even contingent labor, can actually benefit the company as well as the worker. 

Organizations can take advantage of this shift towards remote work by tapping into an international talent pool that allows companies to hire the best talent for the best price, regardless of location. With severe talent shortages impacting nearly every industry worldwide, global talent acquisition strategies can help to fill some of those vacancies. 

Deciding to work with a distributed workforce certainly has its benefits, but it also comes with challenges. There are legal, payroll, and tax challenges that come with employing dispersed or remote employees. Organizations will need to be aware of the employment compliance and taxation obligations in each jurisdiction their employees work in. This can be a complex and time-consuming process. 

Each of the 50 US states has different laws (plus a handful of territories like Puerto Rico and Guam). There are various withholdings, different requirements for paperwork, etc. And, if you are planning to hire globally, it gets exponentially more complex. 

Compliance is the Biggest Challenge

With distributed workforces, whether you are working with permanently remote employees or contingent labor, your workers will often reside in multiple states, sometimes even multiple countries. The labor laws and regulations will vary from location to location. 

Non-compliance can cost the company a lot of money with fines and fees, so it is critical that companies comply with labor laws where the worker resides or works from. That means compliance with the HR, tax, and payroll regulations along with mandatory benefits, like a state-required retirement plan or worker’s compensation. 

The more widespread your workforce is, the more complex compliance becomes as payroll taxes vary from state to state and country to country. Taxation rules will be different at the local and global levels as well as the State and Federal levels. 

On top of the complexity, you have the additional challenge of constantly changing legislation. Organizations not only need to comply with existing regulations but stay on top of ongoing changes and make adjustments accordingly. 

Due to the different legislation on local levels, standard contracts may not comply with the labor laws from one area to the next. So, in addition to compliance considerations, organizations will need to have contracts that can be updated to fit regulations. 

Payroll Taxes for Remote Employees

Payroll is more than simply transferring money to your workers. There are several different areas of impact when adjusting payroll for each jurisdiction. Organizations are responsible for withholdings, deductions, filing, and depositing taxes (which may include unemployment, retirement, benefits, etc,) which will change depending on the state or country your employee resides in. 

If your remote or contingent labor is taking advantage of the location flexibility and living a digitally nomadic lifestyle moving around the country (or world) while employed at your organization, they may earn a tax nexus that you as the employer will be responsible for paying. 

Challenges of Global Distributed Workforces

Global talent acquisition gives many organizations a competitive advantage and whittles down the talent deficit. Unfortunately, as mentioned above, it does also present its own set of challenges. Beyond language barriers, many countries require organizations to set up local entities to employ someone in that jurisdiction. This not only complicates the process but also adds expense. 

The complexity of payroll taxes and other regulations for international employees makes many organizations hesitant to hire outside of their own country. This effectively cuts off the global talent pool, separating organizations from top talent. 

When to Call a Professional

The management of workforce compliance can be especially daunting for even a seasoned HR professional. Companies that hire based on talent—opening themselves up to an international talent pool—can gain a competitive advantage over organizations that hire based on location. For those organizations on the fence, there is help available to handle the complexities of remote payroll taxes. 

Hiring an employer of record (EOR) or agent of record (AOR) to ensure employment classification compliance, onboarding, and payroll processing is an efficient way to ensure critical functions are managed effectively—without sacrificing your global talent acquisition strategy. 

What is an EOR?

An employer of record (EOR) serves as the legal employer for tax purposes. The employee will complete work for the end-user hirer, staffing firm, or other business while the EOR handles the back-end office functions like payroll taxes. 

What is an AOR?

An agent of record (AOR) is similar to an EOR, but they serve independent contractors. Instead of the legal employer, the AOR acts as a third-party intermediary while administering the back-office functions. They handle client engagement, payroll, and government reporting requirements. 

An EOR or AOR can handle all personnel functions related to “professional payrolling,” including payroll process and funding, tax deposits and filing, and employment contracts and paperwork. A global EOR/AOR will eliminate the complications of hiring internationally. The EOR/AOR will have local entities in multiple countries as well as an intimate knowledge of the local labor laws and regulations. 

 

People2.0 is the largest global employer of record (EOR) and agent of record (AOR) platform with capabilities in over 45 countries. Our local knowledge of the complex and constantly changing laws and regulations surrounding a distributed workforce can ensure you hire the best talent compliantly. Visit People2.0 today! 

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