The prospect of shutting an office down can be appealing, but for most companies, it is still too early to tell how big of an office footprint is needed for its employees.
Hybrid work is no longer an abstract concept being considered as a viable return to work option, it's here. Companies like Twitter, Facebook and Spotify have offered employees the opportunity to work from home or remotely forever. After pushback from employees, Google's plan to return workers back to the office full-time has shifted to offering more flexibility, making it clear that employees no longer see flexibility and remote work as a privilege, but a right.
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While these major companies make hybrid and flexible work sound simple in theory, it poses significant challenges and compliance risks and will open a new front in the war for talent. Below I discuss the risks, and potential opportunities, of hybrid work, and recommendations for how business leaders can successfully implement this new work model.
Saving on facilities…. maybe
Most CFO's are probably thrilled at the prospect of more employees working remotely more of the time. That large corporate office is a significant line item on the company books, not to mention the cost to maintain it. Having more employees work remotely creates the opportunity to downsize your office footprint, freeing up cash for other uses.
Business leaders may also find their travel and expense (T&E) budget increases as more trips are needed to facilitate face-to-face time for training and development, team building, and collaboration with employees who may now be spread out around the country or globe.
The prospect of shutting an office down can be appealing, but for most companies, it is still too early to tell how big of an office footprint is needed for its employees. A recent US Gallup poll finds that 72% of white-collar employees were still working remotely as of April 2021. 50% of those employees would prefer to stay remote, while roughly 30% would like to return to the office. Companies will need to find a compromise that meets the needs and wants of the workforce of today, but also the workforce of the future.
New tax and immigration risks
The potential for more distributed and mobile employees creates real concern for organization leaders. For example, before COVID-19, HR and finance departments based tax withholdings on the location of an employee's assigned office. With hybrid models, taxes may be withheld based on where employees actually do their work. Most HR departments are not equipped to supply that information to their colleagues in finance.
Among HR professionals who responded to Topia's annual Adapt survey, 78% believe their employees self-report days spent working outside their home state or country. In reality, 28% of employees say they had worked outside of their home state or country, but only 33% of them reported those days to HR. A quarter reported none of those days at all.
Even if hybrid employees live near their assigned office, a lack of reporting can create risks. The employee who works at home in Westchester but commutes into New York City twice a week will owe NYC taxes for those work hours. The same goes for employees who commute from Bellevue to Seattle or Oakland to San Francisco intermittently. Likewise, employees who split work between southeastern New Hampshire and Boston or New Jersey and New York create multi-jurisdictional tax exposure.
Hybrid companies that manage these compliance risks and withhold taxes accordingly could save millions of dollars. Those that ignore the risks stand to be penalized and pay back taxes.
Culture wars
A key metric of how your company is doing in the talent department is engagement scores, typically generated by an annual or bi-annual survey of employees. Engagement is largely driven by a company's culture. So, what happens when new employees never get to "experience" the culture that's been built?
Many organizations have benefited from transitioning to remote work with established cultures created largely by having employees together in offices. What happens as employee turnover increases and new employees never experience the office culture? Will rapport be the same? Will employees feel comfortable Slacking someone they don't know about a difficult subject?
These are real concerns facing People teams. Things may be moving smoothly for now, but what happens a year down the road if a majority of your team has never met each other in person? Finding the right tools and techniques to keep your employees connected to each other and the company will be of key importance to companies looking to win, and stay ahead, in the battle for top talent.
Offer options to retain your workforce
Many employers are beginning to limit remote work or end it altogether, despite the fact that workers are looking for flexibility. The companies that offer flexible options will be rewarded with higher employee engagement and talent retention in the long run.
My recommendation to companies who invite their employees to work from multiple tax jurisdictions is to document their work locations. Topia's Adapt survey found that 94% of employees are comfortable with an employer tracking their location at the country, state and city level. Technology that monitors where an employee is working ensures tax compliance, considering most employees are unlikely to consistently self-report that data.
Companies who offer flexible, hybrid work options that meet the needs of their employees, while ensuring they remain tax compliant, will win in the long run.
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