As a result of COVID-19 and associated travel restrictions, we are seeing an increase in remote working, especially where employers are hiring individuals who live overseas and cannot relocate to the intended employment location. As a result, these individuals are commencing their employment while working temporarily, until they can relocate to the intended employment location.
MME payroll is currently being delivered by remote teams at multinationals around the world due to people movement restrictions arising from the Coronavirus situation. There have been challenges to overcome, but many global payroll services professionals are used to operating in an imperfect environment where they are delivering payroll accurately and on time in testing circumstances.
From an employee’s standpoint, and to an extent an employer’s, a significant concern is how wages should be sourced for personal income tax and withholding purposes (i.e., which jurisdiction can tax the wages). As with other areas of state taxation, there is the general rule, along with a host of exceptions and variances.
When outsourcing to a payroll service provider, you can be offered of administrative services such as withholding, compensation and issuing checks but it ceases to perform as a legal employer. On the contrary, GEO services act as Employer of Records (EOR) which has the legal responsibility for labour compliances when operating in a country wherein you do not have a local entity. The services offered are payroll and tax administration, employee benefits, currency exchange, in-country money movement, insurance, employment contracts, local laws, immigration or visa/work permit processing.
Payroll concerns
Generally, for personal income tax purposes and the related withholdings, wages are sourced to the location where the services are performed, which would lead a business to potentially change sourcing and withholding from the office location where the employee worked pre-COVID 19 to the employee’s residence location where work is currently performed. One practical hurdle payroll outsourcing companies may encounter is that their systems may not be capable of tracking the location where an employee is actually working, or the company may not have nexus in all the states in which employees reside. In this case, it may not be able to withhold and file the applicable returns. One exception to this general sourcing rule is the convenience of the employer rule that some jurisdictions utilize.
Under New York’s convenience of the employer rule, wages are attributable to the employee’s New York office, regardless of where the work is actually performed, unless the remote location is for a specific business need of the employer—as opposed to the convenience of the employee. Consequently, wages of an employee choosing to work from home in another state generally continue to be treated as New York wages and are subject to New York taxation and withholding. New York has fairly stringent criteria for determining whether a remote work location is for the convenience of the employer or the employee.