It looks like javascript is disabled. In order to use this site, you must have javascript enabled.
After enabling javascript, please click here or reload the page.
CaliforniaTax
by S. Andy Nguyen, CPA
Remote Hiring
Looking Farther Afield to Expand the Talent Base
I
It’s an understatement to say that
the job market has changed because of the
ongoing COVID-19 pandemic. While some
industries have seen their demand plummet
and customer base shrink compared to prepandemic
times, others have had the exact
opposite issue.
The adoption of remote work across
the country was previously something that
perhaps had been anticipated, but many had
considered to be years away.
With the number of vaccinations
increasing and the pandemic
showing signs of somewhat
receding, employers and
employees have begun to
adapt to this new work
environment. Many across
the country have witnessed
both the benefits and pitfalls of remote work.
Additionally, many employees and
employers have seen benefits of such
an arrangement, most notably with the
expansion of the labor pool. Rather than
getting caught up in or continuing the endless
cycle of self-cannibalization from their direct
competitors in the local area, firms have
begun to look nationwide and abroad as a
means of expanding their talent base.
With the new opportunities, however,
come some potential pitfalls.
Here are a few things to keep in mind
before you decide to hire remote workers.
Employment Status
As the result of the passage of AB 5, there
have been clear rules and regulations
dictating who can or cannot be classified as
an independent contractor within the state
of California.
Other states may not have any clear-cut
rules, or may even have rules that conflict
with your company’s home state regarding
the classification of workers as an employee
versus an independent contractor. It’s highly
advisable to check the laws of the state of the
worker’s residence, as well as engage local
labor counsel for confirmation before making
an offer to a prospective candidate.
State Nexus
With a remote worker outside of your state,
you may have created nexus between your
business and the state of their residence. This
is highly dependent on their employment
status (see above) as well as the role that
worker plays in the company. If the person
is an employee for the company and either
The remote boom resulting from
the pandemic has opened quite a few
opportunities to expand one’s labor pool.
solicits sales or takes part in administration,
there is a higher likelihood of creating
nexus as opposed to if the worker was
an independent contractor working on a
support role.
Although the Multistate Tax Commission
has created rules to add consistency to state
definitions regarding which activities create
nexus, not all states are in conformity and
some states only partially conform.
Furthermore, the payroll factor may not
be the only apportionment factor affected.
Depending on the worker’s status and role
in the company, the revenues earned in that
state may now be apportioned to that state.
Filing Requirements
The hiring of a remote worker may trigger
increased compliance obligations for the
company. An out of state independent
contractor may only cause a company to
issue a 1099 to the contractor, with the
payment sourced to the contractor’s state
of residence.
On the other hand, if the worker is an
employee, the company will be responsible
for withholding federal and state payroll
taxes for the employee and file quarterly
payroll tax forms as well as an IRS Form W2
at year end.
Depending on the worker’s role and the
resulting impact on creating nexus where the
work is performed, the company may also be
obligated to file an income tax return with
that state.
In addition to income tax considerations
for sales, companies also need to consider
sales tax nexus. Depending on the good or
service provided, sales may be subject to sales
tax and require the company
to both collect and remit
sales tax and file a sales tax
return. Depending on the
jurisdiction and level of
activity, this may be filed on
either a monthly, quarterly
or annual basis. Although sales tax has been
a secondary concern in years past, the ruling
on the Wayfair case by the Supreme Court
has resulted in sales tax becoming a more
significant issue.
Conclusion
the pandemic has opened new and
unique opportunities to expand one’s labor
pool. However, while there are benefits to
doing so, one must be aware of any possible
pitfalls and to plan accordingly to avoid
unforeseen issues.
S. Andy Nguyen, CPA is a tax manager at
Lavine, Lofgren, Morris & Engleberg LLP. You
can reach him at nguyena@llme.com.
www.calcpa.org
SEPTEMBER 2021 CALIFORNIA CPA 21
Right click(Command + click) your mouse on the magazine pages to pop up a Quick Menu of the most used reader features:
To open up additional features, hover over or click on the arrow on the left. You can pin this pull-out menu to have it remain visible (or close by clicking on the push pin ). Included in this tab:
A: Our print feature relies on your web browser's print functionality - and how that browser communicates with your specific printer. If you note that pages are getting cut off, or you are having other issues when printing, it is likely that you need to adjust your printer's settings to scale to fit page.
Alternatively, if there is a PDF Download option available you can download the PDF first and then print using Adobe Acrobat Reader’s print feature. There are known issues in printing fom Internet Explorer 7, so if you are using this browser, you may wish to try a different one. If you are able to print from your browser normally but are having issues specifically with printing pages from the magazine, then please contact technical support.
Thank you for sampling the digital edition of California CPA To continue reading this issue, you must be a subscriber.
If you are a subscriber, you must log-in before you can continue viewing the digital edition.
Click here to log-in
If you are not yet a subscriber:
Click here to join.