Things to consider when hiring your first work-from-anywhere employee
This content originally appeared on TechCrunch.com. It was sponsored by CohnReznick and created by TechCrunch Brand Studio.
Professionals from CohnReznick talked to TechCrunch about taxes, compensation, and other factors to keep in mind when considering hiring employees who will be fully remote.
Adaptation can often lead to adoption. Test a new protocol for long enough, judge its strengths and weaknesses, and before you know it, you’ve developed a new status quo. Such is now the case with building a work-from-anywhere workforce.
Since the pandemic triggered workplace shifts last spring, many employers have avoided the fast-approaching seismic shift: Future hires would not only be remote for the time being, but perhaps remote forever. According to Asael Meir, Partner and Technology Industry Leader at CohnReznick, “These are exciting times. Reimagining your business as one which includes a remote workforce requires a new set of considerations, specifically when it comes to talent sourcing, compensation, and taxes.”
The waters are relatively uncharted, so benefits of hiring remote employees vary firm to firm. Big tech, for example, appears to be split. Twitter announced that its employees can work from anywhere forever, while Netflix CEO Reed Hastings has said that he’s seen no positives from the remote work life. There’s no one way of doing it, and hiring your remote team provides a chance to reestablish what your company really stands for.
“When developing a work-from-anywhere strategy, organizations will need to implement policies to manage alteration of corporate culture,” recommends Reed Dailey, a Director in Technology and Data Consulting at CohnReznick. “This is vital because culture represents the very character of the company, and significant changes could be destabilizing.”
Here are some things to think about before releasing that first remote job posting:
Employers who hire remotely will need to understand how the location of their hire affects tax liability. Is the employee located in a different state? A different country? If so, you may need to reanalyze withholdings and ensure that you have all the necessary paperwork for the employee.
When it comes to state-to-state hires, for example, you’ll need to evaluate whether your hire creates something called “nexus.” This basically means there is income tax applied on the out-of-state employee’s income. Some states have abandoned nexus amidst the pandemic, so it’s important that you have thorough guidance from a tax professional before adjusting too much.
According to Yoli Martinez-Nadal, a Tax partner at CohnReznick, “Companies should first think about what connection your business already has with the state where the new remote employee will work. If you have no other ‘taxable connection’ in that state, then the new employee may trigger new sales and/or income tax.”
Specifically, you may also need to decide whether your employee lives in another state “out of convenience.” The terminology here is especially pertinent as so many tech employees are opting to move out of big cities during the pandemic. (One study found 80% more people left San Francisco and New York than moved to either city this year). Traditionally, employees who live in one state and work in another out of convenience can be double-taxed. That may change this year, so you’ll want to stay up to speed at the moment you hire your new employee.
Often, tech firms skirt around the considerations of full-time hires from out of state by hiring employees as contractors.
If you’re looking to get granular, investigate this helpful 542-page document from the American Institute of Certified Public Accountants (AICPA) published during the pandemic. Or simply have a tax professional comb through it on your behalf.
With great challenges come great opportunities. Hiring a remote employee may save your company money in both obvious and subversive ways. Consider the office space you are forgoing by hiring someone remotely. Many firms are already seeing the benefits. More than two-thirds of large-scale companies are planning to formally downsize their office space.
With the adoption or development of new technology and processes surrounding your remote workforce, your company may be eligible for the Research and Development (R&D) Tax Credit.
Broadly, the R&D Tax Credit is a business tax incentive intended to encourage investment in research and development activities. It remains one of the best opportunities to reduce taxes. Activities and expenses that can qualify for the credit are often more expansive than businesses realize, and shifting to work-from-anywhere might open up some new avenues. For certain employers, the R&D credit can even be used to offset payroll taxes.
State credits can include a state version of the federal R&D Tax Credit, hiring or retention credits, urban development incentives, manufacturing credits, and grants for targeted activities or geographic areas. Certain states not only have an R&D credit, but qualifying companies can also sell their state R&D credits to generate cash flow.
A study in July found that nearly 22% of people have already changed residence during the pandemic. That’s a lot of balls in the air, especially for leaders trying to set market rates for new employees. On the one hand, you’ll need to compel top talent with big-city salaries; on the other hand, you should not overpay an employee who will not be paying big-city rent to be working for you. Which should you prioritize?
It likely depends on the role. Perhaps investing in an engineer in Omaha, for example, will be worth paying at a Seattle salary.
“Compensation strategies are being revamped in light of the fact that we are already seeing significant migration out of metropolitan areas,” explains Jarret Bluth, Tax Partner at CohnReznick. “Some tech companies are creating new strategies that include cash bonuses, stock options, and significant changes to annual compensation. Fundamentally, however, the talent is still the same. We might see a slow flattening of compensation levels, and not necessarily to lower compensation — quite the opposite.”
Be mindful that compensation goes beyond the salary. How will hiring employees from out of state affect the healthcare plans that you offer? Retirement packages? Non-monetary incentives? Workers’ compensation? All of these benefits vary state-to-state and can be deal-breakers.
You’ll need to ensure you have the right technology to support a full-time remote employee, and keep them feeling like they’re 100% part of the team. Consistency is more important with remote employees than it may be in person. Focus your remote work strategy on the human characteristics of work – such as how people like to work, or the types of environments in which people work best – to build a program that allows employees to perform their tasks efficiently and effectively, communicate seamlessly, collaborate, and maintain communities.
Don’t ignore shifting labor rules when structuring a new employee’s schedule. The “right to disconnect,” for example, is a protection for overworked remote employees that is gaining traction across Europe and may begin to find legs in the United States.
Talent pool widening
It’s first worth acknowledging the title of this article – the difference between “work from home” and “work from anywhere.” One term binds your future employees to their homes in a way that not only might be off-putting, but also could truncate your company’s overall reach. The other says the world is your oyster, a sentiment that might better attract fiercer talent.
Companies will need to adapt, and find customized strategies that are right for them. To attract the right talent, employers must find the right balance between work-from-anywhere and in-person collaboration. For most, it’s not going to be all or nothing.
While hiring on Zoom might not be the most intimate way to get to know a new candidate, remote talent sourcing is certainly broader. A recent survey found that 72% of CEOs say that work-from-anywhere has expanded their talent pools. This is good news for companies who need sophisticated talent, and fast. You can abandon the line of questioning for employees that prompts them to consider whether they’d move for you. Instead, you can get them in the virtual door right away, and start transforming your business.
Asael Meir, CPA, Partner, Technology Practice Leader
Reed Dailey, Director, Technology & Data Consulting
Yolimar Martinez-Nadal, CPA, MST, Partner, Tax
Jarrett Bluth, CPA, MST, CGMA, Partner, Tax
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