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Employers, Do You Have Employees Working Remotely? Here are Your Tax Withholding and Reporting Obligations

January 21, 2021

There can be tax withholding and reporting obligations for employees working remotely... Here is a simple three step approach to help you manage your obligations.

The COVID-19 pandemic accelerated the growing trend of employees working remotely. Consequently, employers are having to adapt to manage the new employer tax and social security obligations as failure to meet them can result in significant additional costs through penalties and interest.

The following simple three step approach can help you manage your obligations.

Step 1 - Discovery

The aim of Step 1 is to understand where your employees are working and what they have been doing as this will determine where your employer obligations lie.

This is an ongoing process and involves regularly gathering information about your employees with the aim of answering these three questions:

  1. Where are your employees working?
  2. How long have they been working in these locations?
  3. What duties have they been doing while in these locations?

Employers use different approaches to gather this information, ranging from simple employee questionnaires and electronic calendars to technology solutions and mobile apps. Employee communications will also be important to achieving employee buy-in which will help facilitate collecting this information on a regular basis.

Step 2 – Analysis

In Step 2, your employee information is analyzed to identify any “high-risk” employees, i.e. those employees are working in a country or a U.S. state different to where it was anticipated they would be working.

The aim of this analysis is to be able to answer these three questions:

  1. Who are the “high risk” employees?
  2. What are the locations involved?
  3. What are the employer reporting and withholding requirements for those locations?

Given the technical nature of this analysis and the significant cost exposure, employers are finding it beneficial to obtain specialist guidance with this step.

Step 3 – Implementation

In this final step, the aim is to ensure all employment income (cash, non-cash payments, and benefits) your employees are receiving are appropriately reported for tax and social security withholding and reporting purposes.

This involves:

  1. Collating details of all cash, non-cash pay, and benefits paid or provided to your employees. Particular attention should be paid to the expense reports as taxable pay and benefits can sometimes be erroneously processed as expenses.
  2. Ensuring the appropriate tax and social security treatment of each cash and non-cash benefit is documented and coded into your payroll system.
  3. Regularly collating, analyzing, and processing this information to ensure that your employer withholding, and reporting is in accordance with your obligations in the locations where your employees are working.

For most organizations, the unexpected experiment in mass remote working has been surprisingly successful. It is not without its challenges and one of them is managing the employer tax and social security compliance requirements. KLR’s simple three step approach is designed to help you meet your employer obligations in an effective and efficient manner.

KLR’s International Tax Services team has extensive experience in managing and advising on employer’s tax and social security withholding and reporting obligations. We can guide you through this three-step process to provide you with the peace of mind and confidence that comes from knowing that your employer obligations are being appropriately managed.

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