Remote Work Makes Payroll Complicated


Remote Work Makes Payroll Complicated
Sheila Moss, president of the Northwest Arkansas Human Resources Association, says payroll could soon grow more complicated.

In Arkansas, employers aren’t currently paying remote workers more or less than their in-office counterparts, but they should start thinking about adjusting wages based on where remote workers live — and preparing for payroll to get a lot more complicated.

On the upside, allowing employees to work remotely could help companies recruit the talent they need. Employers wouldn’t have to convince prospective employees to move for the job if those employees work remotely.

Employers will likely see cost savings as well, because having more employees working remotely means maintaining less real estate.

Sheila Moss, president of the Northwest Arkansas Human Resources Association, a chapter of the Arkansas Society for Human Resource Management, said employers who have employees working remotely from other states will face the biggest challenge. She also serves on the ARSHRM State Council and owns an HR consulting group, Information Solutions Team LLC in Bentonville.

Moss said those employers will have to comply with different laws that affect how much they withhold for taxes from paychecks and how much they pay for unemployment insurance.

Andy Challenger, senior vice president at outplacement firm Challenger Gray & Christmas Inc. of Chicago, said, “As companies start becoming less centralized, becoming decentralized and allowing people to work wherever they want, it’s going to create an extra burden on the company to figure out those taxes. It gets pretty complicated pretty quickly.”

Moss said outsourcing payroll can be a good option for these employers.

“Outsourcing payroll is a popular choice anyway because payroll is a very complex process, and it is a place that you can make really terrible compliance-related mistakes,” she said. “The compliant payroll companies would have that all figured out.

“That is their reason for being. So it can very well be worth it. Usually, their fees are not prohibitive. There’s several out there that are very affordable. And that makes a lot of sense rather than increasing your internal staff to try to keep up with that complex issue.”

Another challenge for employers is that compensation is usually based on location, Moss said. For example, an administrative assistant in Manhattan makes more than an administrative assistant in Little Rock.

But working remotely gives employees the option to move to areas with a higher or lower cost of living. “So, normally, you scale your compensation to take that into account,” Moss said. “And now you may not have planned for that because, if it’s a company that’s never experienced remote workers, then they may not have accounted for that. So when they begin to recompute their compensation structure, it may very well change based on people’s cost of living.”

People moving to areas with a lower cost of living to work remotely may reap benefits, if their pay remains unchanged, she said. Some employers may also pass along their real estate cost savings to remote employees via pay raises, Moss said, but she hasn’t seen much of that occur.

Pay decreases are another response that’s been seen elsewhere. Challenger, with the Chicago firm, said Silicon Valley companies decided early on in the pandemic that they would allow people to work remotely. But some of them reduced wages for their employees who moved out of that high cost-of-living area to areas with a lower cost of living.

Facebook was one of the companies that took that step, he said, and it was a controversial move. But Silicon Valley companies often pay a “huge premium” to recruit employees from lower cost-of-living areas to where they’re based, Challenger said.

As for remote employees moving to higher cost-of-living areas, Challenger does not believe they will be able to get higher wages. “But I do think there’s also going to be more willingness on a company’s part to pay premiums for people that already live in high-cost areas that have unique or special skill sets that are hard to find,” he said.

Challenger also said job seekers may make concessions on pay to work remotely because they value the autonomy that affords them. “So it’s going to be a lot of individual negotiations with employees for a period of time here until we settle into some new framework for how remote working is going to be applied across the board,” he said.

In addition, it’s going to be “really tempting” for HR managers and CEOs who want everybody back in the office to make an exception for an outstanding employee who wants to live elsewhere and work remotely, Challenger said.

“But it’s important to be aware that employees talk to each other, and they share that information,” he said. “And it’s hard to make one-off deals and, in this environment with employees, it can come back to bite you. So it’s better to have a larger policy that you can always refer back to, because there is going to be a lot of contention over salaries and location in the next couple of years.”