As the pandemic has forced most of us to work from home for the foreseeable future, you’ll need to become a digital leader in navigating this new normal.
Which is to say, you might want to consider occasionally changing out of your sweatpants for team meetings. For business owners big and small, choosing to forgo office space, supplies, and coffee pods while putting the health and wellness of your team at the forefront is an excellent choice.
Due to stay-at-home orders issued by governments during COVID-19, the small business that could have their employees work from home did. If this is you, you no doubt felt lucky you had that option—many of the small businesses that didn’t no longer exist. But now that the initial shock of unexpected changes is over, you may not be feeling quite so fortunate. Because now that your employees are remote workers, there are new codes to follow when it comes to payroll and taxes. But don’t worry. We’ll help you untangle this new web of information. Welcome to our network.
THE NEW LAWS OF THE WILD WORLD WEB
As business owners in the time of COVID-19, we’re exploring uncharted territory with remote workers. The days of traditional work hours and team meetings have all gone virtual. To get more familiar with this dark side of the web, we’re shining the light on a few laws that have come into effect since the pandemic. They may have an impact on your business and employees who are working from home. We’ve uploaded some need-to-know highlights for you here, so you don’t have to worry about getting your financial business wires crossed.
THE REMOTE AND MOBILE WORKER RELIEF ACT OF 2020
This bill expands on reducing financial burden during COVID-19, including the taxing of a temporary or permanent remote workforce. How does it help small business owners? Well, it relieves a big headache if you have employees who moved across state lines and who are working remotely for you during the pandemic.
Usually, when a remote worker lives and works in a state other than where you do business, as the employer, you are responsible for registering with and withholding taxes for that state. This bill enacts a threshold period where you don’t need to worry about making that connection with the other state immediately. The goal of this bill is to reduce confusion during these uncertain times and to ensure remote employees aren’t taxed twice on the same income.
FAMILIES FIRST CORONAVIRUS RESPONSE ACT
For many remote workers and their employers, sick pay and family leave are a real concern, especially during the pandemic. This act helps employers offer additional sick and family leave benefits to employees. Employees who can’t work for Coronavirus reasons can receive up to 10 days or 80 hours or sick pay. If they need to take time off to care for a child, they are allowed family leave for up to 10 weeks.
THE INFORMATION SUPERHIGHWAY ON TAXES
Pandemic or not, the thought of taxes alone can make you reach for the panic button. Although it may seem like rocket science, you don’t have to blow a fuse figuring out how to tax your remote employees. So, we’ve launched some need-to-know information so you can restart your tax approach in this new normal.
First, consider the types of remote employees you currently have on staff.
This will help you determine which taxes you need to withhold and/or pay, as well as which benefits you need to provide. Here are the most common types of remote workers:
As a business owner, you’ll withhold and pay for income and payroll taxes. Depending on where these employees live, you will need to comply with their local laws and regulations.
- Sole Proprietor
These employees typically set up their own companies, and their business entity will issue invoices and pay on taxes as a corporation.
The preferred type of remote worker, these employees are responsible for and will handle their own taxes.
Next, your location will have an impact on you and your employees.
If they work and reside in the same state that your business is in, those local laws and regulations will apply accordingly. If your remote employee(s) are in another state or work internationally, you’ll need to stay up to date with what that means for your business. Currently, most states haven’t clarified tax treatment for remote work related to COVID-19, but eventually, they will have to.
Remote Workers in Another State
The tax year 2020 may end up being a hot mess due to all the unusual circumstances stay-at-home orders have brought about. You may have employees who live in the state where your office is, but who moved out of state to work during COVID-19. It’s up to you to ensure the state taxes are paid based on where the employee is now working.
CLOSING THE CIRCUIT ON REMOTE EMPLOYEE PAYROLL
You won’t want to deal with payroll when it comes down to the wire. You’ll need to determine a structure that works for you and your unique business needs. But, there are some general guidelines to follow to ensure you are benefitting both sides. The last thing you want to do is put your employee in a situation where they end up having to pay thousands of dollars in fees. That’s money that’ll just be thrown out into the ethernet, and who wants that? However, as you are optimizing your financial framework, be sure you aren’t doing it at the cost of breaking any laws. We’ve got some insider intel on how to navigate paying your remote employees. Let’s open the files.
PAYING LOCAL REMOTE EMPLOYEES
Whether they are full-time or sole proprietor employees, be sure that you are fulfilling all of your tax obligations. This includes end-of-year tax forms like the 1099’s for contractors. There are online platforms like PayPal, Venmo, or CashApp you can utilize like that can make paying employees super easy. This option can simplify the process and keep costs low. Make sure to read the fine print when using a third-party payment processor like those mentioned above. Some of them charge fees that you won’t be aware of if you don’t pay attention. For example, PayPal is not the way to go if you send payments outside of the country. You can find out which service we recommend for those situations here.
PAYING INTERNATIONAL REMOTE EMPLOYEES
When it comes to workers who are located across the pond, the primary issue is paying them while avoiding fees that you may find offline. A single bank transfer usually costs around $30. That might not seem like much, but add that up, and that is a lot of cash. In addition, employing international employees will require you to stay up-to-date on exchange rates. Those sneaky banks have a way of hiding costs with exchange rates, so be on the lookout. Hiring independent contractors might be the way to go, as they are responsible for their own taxes and benefits.
THE DOWNLOAD ON DEDUCTIONS
It’s likely as the 2020 tax date draws nearer, you’ll get questions from your employees about tax deduction while they were working from home during the quarantine. As of now, the government hasn’t changed the tax codes for that. As far as we can see, tax deductions for those with a home office will still only be offered to those running their own business. That means while you, as the business owner, will be able to take advantage of those, your employees won’t. This is because their “home office,” whether the kitchen table or standing desk set up in their walk-in closet, was used while working for you, not for themselves.
Here is a list of potential deductions:
- Cost of Rent
- Mortgage Interests/ Depreciation/ Property Tax (If you’re a homeowner)
It’s essential to keep in mind that your deductions are limited. Unfortunately, you can’t write off everything to avoid paying taxes altogether. The deductions are limited to your business’ annual profit, so it’s crucial to get a tax professional to help you with the process. Some purchases may blur the line between professional and personal—like that industrial blender you bought for your new love of kale. Although it may seem crucial to your workflow now, it’s probably not worth writing off.
You may be enjoying not having to drive in morning traffic to get to the office now, but you need to consider how that may impact your tax deductions this year. If you are used to writing off mileage, travel, and entertaining clients, you may get a shock when April 2021 rolls around. Since these things haven’t been possible for most of 2020, you may get stuck with a higher tax bill. If you haven’t yet, now’s the time to start keeping track of all the unusual tax deductions (no, not the industrial blender). Things like subscriptions to video meeting platforms and project management systems, as well as home office deductions, will help you keep your taxes more stable, but don’t put tracking those off.
Going global with remote employees may seem like a hassle, but it also has a ton of benefits. You’ll be able to pick the best team members for your company, bringing in big ideas and a diverse point of view that can truly benefit your business. Having employees all over the world will also allow you to work across time zones, giving you more maneuverability to meet client demands or deadlines.
As difficult as the transition has been, working remotely gives your employees unique skills that will set them up for success in the future. If there were truly a zombie apocalypse, your team would transition seamlessly.
We get it, remote employee taxes and payroll can open up a whole web of rules and regulations and browsing around for answers may be exhausting. Even more concerning, you might not even realize that you are uploading exorbitant fees. But, that’s where we come in! Most small businesses outsource these tasks to their accountant. As experts in the network, we make sure that no issues come back to come back and byte you. Ping us anytime—we’ve got the intel to get you with the click.