Episode #37: The Work-from-Home Conundrum (Paula Weber)

Joel Simon: I’m really excited to have you on our podcast, Paula. As the pandemic seems to be receding, it looks like remote or hybrid working is here to stay, and this raises a boatload of issues for employers. Let’s get started with an added twist. Not only are many employees working remotely, but they’ve moved out of state to do so. What do employers need to consider when determining whether to require their employees to return to the office or to allow them to continue to work remotely from a different state?

Weber: Well, Joel, the starting point is a practical one. Can the job be performed just as well remotely? Both as a general matter with respect to the job and by a particular employee, some jobs are just not well suited for remote work, and employers generally want hourly workers to be physically present at the workplace for supervision and timekeeping reasons. However, if the answer is yes, this is a job that can be done well remotely and can be done well by this employee remotely, there is still a variety of legal and company cultural issues that need to be considered.

Simon: Let’s hit the legal issues first, Paula.

Weber: There are several. For example, tax implications. Rules vary on which state has the right to tax income of the employees working from home for the employers in different states. There are business registration requirements. The employer may have to register as a foreign corporation in any state in which an employer is working from their home office, if the employee qualifies as a resident of the state. There can be licensing requirements. For some professions, employees may need to have a state license. For lawyers, that’s a very big issue. Unemployment insurance. Having an employee regularly working in another state generally requires the employer to register and pay unemployment insurance premiums in that state. There’s also probably my favorite, which is compliance with state employment laws—different states have different wage and hour laws, paid and unpaid leave laws, regulations on mandatory benefits and recall rights after furlough and other types of issues. So an employer can find itself deemed to have knowledge of these laws and having to comply with them, and you might also have to provide employees with written notice of their legal rights. This is a real warning I give to employers, especially who aren’t resident in California, because California has a lot of its own specific laws, and wage and hour laws apply if you even just have one employee in the state.

Simon: That’s a whole lot to consider, Paula. I know there are also cultural issues. What can you tell us about those?

Weber: One thing that a lot of people don’t think about is the difference between having a setup in which the employees may work remotely some days, but will need to come into the office at various times, as opposed to a job that’s 100% remote, which is what you have when someone’s moved to another state. And you need to think about, does having someone 100% remote adversely affect things like training, loyalty, team building, problem solving? The employer needs to think about, will I see more turnover? Poorer quality decisions? It’s a big issue that you need to think about—how is this going to work once you’re outside the crisis? Then of course, there’s also the economic side of things, which can also impact the culture in a good way.

Simon: I guess there could be big cost savings for the employer. I know that’s something that I hear about all the time.

Weber: Right. Well, this can be a major benefit to many employers, and they saw a lot of this due to COVID-19 and people working remotely. Remote workers may allow employers to save on real estate costs, which are huge, and on smaller items, which can add up, like in-office perks such as providing meals, which can become a big issue for a lot of companies. However, you need to remember that in some states like California, you have to make sure that you reimburse employees for business-related expenses, like use of their home internet or equipment if they’re working from home. However, that’s usually a fraction of the real estate costs you can save by having people work remotely.

Simon: What about the other big expense the companies have, which is salary and wages? What happens if an employee’s salary gets cut, for example, because they’ve moved to a less expensive area?

Weber: That’s a really hot and somewhat controversial issue. You may have read that some of the huge IT/social media companies have announced that an employee’s pay will be lowered if they switch to working from home permanently, and the remote location has lower labor costs. Google, Facebook and Twitter have all announced such a policy. Google, in fact, it’s been widely written, uses an internal salary calculator that shows how much employees’ salaries will be cut if they work remotely. At Google, an employee’s salary may be cut not just because the remote employee moves to a lower cost state. By way of example, if they live in a suburb outside of the city and that suburb has a lower cost of living, they’re going to get paid at a lower rate.

Simon: Doesn’t that type of a policy reflect that the cost of living could be higher in some areas, and so you might have to actually pay higher salaries in some locations?

Weber: When you think about it, it’s really sort of a chicken-and-egg issue. The salaries usually reflect the cost of obtaining talent—much of the sought-after talent that has historically wanted to live in the Bay area, New York and other major cities. When an area becomes a hot labor market, the costs of living often goes up.

Simon: So then, is it fair to have these types of pay cuts if the employee, for example, has voluntarily chosen to work from a less expensive location?

Weber: Frankly, like most employment matters, major actions, that’s probably going to be in the eye of the affected employee. You may have one reaction to a pay cut to someone who does not move, but decides to work remotely to avoid a very long commute each way to the office. And that reaction may be different from someone whose cost of living has really changed because they’ve moved to a remote state. Another viewpoint is that of an employee who’s always worked in a lower paid area—say for example, in the Midwest—and got paid less because of this. If someone moves to their Midwest location, a new Midwest location, and does the same work but is paid more simply because they used to work in a more expensive location, you can have other legal and morale issues. For very large employers who have always had employees all over the country and in the world, such as Google and Facebook and Twitter, this can be a real issue.

Simon: What are the risks if an employer institutes pay cuts?

Weber: You see a lot of concern about gender pay gaps with a policy like Google’s, in which you can be paid less for working remotely, even if you don’t move. Because the view is that more women may choose to work from home to care for children or ailing relatives. I’ve also read about the same types of concerns coming from the disability community, saying that it could end up discriminating in pay to those people who are disabled and choose to work from home because of those issues. You need to think about how lowering pay can demoralize remote workers. Psychologically, I think we can all agree that employees generally hate a pay cut much more than they appreciate a pay raise. And then finally, you need to worry about losing talent. While some large employers are reducing wages based on location, many employers are not doing so, and so employees may leave for a competitor if their pay is reduced.

Simon: Yes, I’ve heard about that happening in many industries, and there have been a lot of articles about that, as well. It sounds like between the legal and cultural issues, employers certainly have a lot to think about and to call you about. So hopefully you’ll still have time to take my call every once in a while, Paula. Thank you so much for joining us today. I really enjoyed our conversation.

Weber: Thank you, Joel. It’s been a pleasure to be here today.