A growing number of businesses are offering remote work because of the COVID-19 pandemic. Remote work was already experiencing an upward trend before the pandemic, growing 91% within the last decade. While remote work is convenient and safe for employees, it can present particular challenges for businesses that are used to running an office environment. Small business owners may be wondering what they need to do to pay remote workers who telecommute.
To help you manage payroll and maintain compliance with laws and regulations, here are five things to know about paying remote employees.
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1. Employee Payroll Forms
Employers need to keep certain types of payroll forms for remote employees, just as they would with other employees. Whether you plan on going remote on a temporary or permanent basis, you will need all pertinent documents. You will also need to hold on to them for a minimum of three years per the Fair Labor Standards Act (FLSA).
The following documents are required for every employee.
I-9
Form I-9 helps confirm that employees are legally permitted to work in the United States.
W-4
Form W-4 will determine the amount of withheld federal income tax.
State Forms
A state W-4 form may apply to specific situations. This form determines the total state income tax withholding for your employees.
Employee Handbook Acknowledgment
If your company has an employee handbook and you want to ensure that your employees understand its contents, you may have them sign an employee handbook acknowledgment form.
Direct Deposit Forms
If employees receive payments via direct deposit, you may also have them complete direct deposit forms.
New Employee Forms
When hiring and onboarding new remote employees, make sure every candidate receives new employee forms. For example, I9 forms must be completed within 3 days. An efficient way to deliver forms is through an employee portal, which your HR partner can help implement among your employees.
2. Withhold Proper Payroll Taxes
When paying remote employees, you will also be required to withhold payroll taxes, which may include:
- Federal Income Tax
- Social Security Tax
- Medicare Tax
State and Local Income Taxes
You may need to withhold state and local income taxes, but this may not apply depending on where you and your employees are located.
Some businesses may have employees who work and live throughout the country. For employees located in another state, make sure you research all taxes you need to withhold for that state. It’s also important to examine the relationship between locations.
For example, suppose your business is located in Chicago while an employee works and lives in Wisconsin. In that case, both Illinois and Wisconsin share a reciprocal tax agreement, which means the employee wouldn’t be required to pay Illinois state taxes.
3. Payment Methods
Employers have several options available for paying remote employees. You may be able to pay via:
Direct Deposit
Direct deposit is the most popular payment method, as 82% of employees participate. For most workers, this is the ideal payment because it’s both quick and reliable.
Pay Card
Pay cards are an excellent alternative to direct deposit but check with your state’s pay card laws to maintain compliance.
Mobile Wallet
Mobile wallet platforms like PayPal, Venmo, Apple Pay, and Cash App are other potential alternatives to direct deposit.
Check
If you prefer, you can also send checks to employees by mail or allow them to pick up their checks, depending on where they live.
4. Pay Stubs
In addition to payments, employers will need to provide remote employees with pay stubs, which lists all details about their income, including gross wages, net pay, and deductions. Pay stub requirements vary from state to state, so check with your state’s requirements to maintain legal compliance.
There are a few ways to go about distributing pay stubs:
Mail Stubs to Employees
You have the option of sending pay stubs by mail to employees, which can be sent along with payments in the form of a check.
Send Them Electronically
If you’re sending payments electronically, you also have the option of sending pay stubs electronically.
Electronic Pay Stubs Through Online Portals
If your business uses an online employee portal, you can allow employees to view pay stub details in the portal.
5. Follow State Laws
Businesses also need to ensure that they’re adhering to state employment and payment laws for remote workers. You may need to do some additional research if you have employees who live and work in separate states.
The different state laws to consider could include:
Minimum Wage Laws
The amount of minimum wage you will be required to pay employees will vary from state to state. Other minimum wage laws that could apply include those imposed by your county or jurisdiction, so it’s best to check with your HR partner to ensure compliance.
Mandatory Direct Deposit
In some states, employers may be required to provide direct deposit payments. Keep in mind that states without mandatory direct deposit laws adhere to federal laws, which means that employers may still be able to make direct deposit mandatory if the state doesn’t require it.
Pay Frequency
Depending on the state, you may need to pay either twice a month (semi-monthly), every other week (bi-weekly), or even every week or once per month. For instance, California requires semi-monthly payments at minimum, while Kansas requires businesses to pay workers at least once every month. Of course, you can pay your employees more frequently if you wish.
Local Income Taxes
Local governments may impose a local income tax in certain states, along with state and federal taxes.
Workers’ Comp Requirements
State laws also regulate workers’ comp, which means you will need to review your state’s workers’ compensation laws to learn about the requirements and penalties. Texas is the only state where workers’ comp is optional.
State-specific Taxes
You may also need to see what other taxes are specific to your state or the state where employees are located, as well as local taxes that go beyond state requirements for which you are still liable.
Manage the Payroll Process for Remote Employees with a PEO
Managing payroll and other aspects of remote employment can be overwhelming in many cases. If you want to simplify the process and avoid compliance issues, consider outsourcing your payroll to a professional employer organization (PEO). A reliable PEO will help you adhere to all federal, state, and local laws and effectively manage payroll so you can facilitate your remote workforce.
