Tax implications of remote workers
A co-employer model can help manage compliance and HR requirements
Marcus Rien, CPA, MR Consulting LLC | December 2022/January 2023 Footnote
Editor's note: Updated November 29, 2022
Many of the operational changes implemented by businesses and workers during the past three years are here to stay — especially when it comes to remote work.
For employers, offering remote work can serve as a handy recruitment tool, cost-savings opportunity and employee benefit. It also allows organizations to recruit talented workers across state borders. This is more important than ever as staffing challenges persist, and business leaders recognize that it’s their people strategy that fosters their business success.
However, the expansion of remote work isn’t without drawbacks, particularly when it comes to tax reporting and liabilities. Companies that hire multistate employees need to be compliant in each state, pay taxes appropriately, offer benefits and follow all state, city and county rules and regulations. This creates many challenges for human resources departments.
This is the situation Lightstar Renewables, LLC found itself facing. In the past few years, the company grew dramatically while also adapting to a fully remote workforce. As a result, the company needed access to resources that exceeded its overhead capacity. After considering various options, I determined that the best route going forward was to adopt a co-employer model and work with a professional employer organization (PEO).
What is a PEO
In short, a PEO is an outsourced human resources, payroll and benefits solution that operates through a co-employment business model. PEOs have been around since 1986 and have been accredited for certification as a Certified PEO (CPEO) since 2017.
Under this model, your employees are on the PEO’s books but still under your management. PEOs can provide a “one-stop shop” for payroll, HR administration, employee benefits, risk management and regulatory compliance, workers compensation and employee training and development for companies.
This model allows business owners and executive teams to focus on their duties and growing the business. PEOs give them their time back by managing HR tasks, culture improvements and leadership development. It’s important for a company to determine their needs and then find the PEO that best fits and assists with those needs.
What to look for in a PEO
When looking for a PEO, do your research to ensure that they are trustworthy and certified. A Certified PEO has been accredited by the IRS through demonstrating it adheres to best practices, meets strict financial guidelines, and complies with all employment laws and regulations for all states where they do business. Other accrediting organizations are the Employer Services Assurance Corporation (ESAC), National Association of Professional Employer Organizations (NAPEO) and the Better Business Bureau (BBB).
After considering multiple HR and payroll solutions, and countless RFPs from individuals and firms with a focus on small business HR augmentation, I found the best solution for Lightstar’s business growth objectives was to go the PEO route and connected with Insperity, one of several options out there.
Benefits of a PEO
For startups as well as small and mid-sized firms, PEOs offer several time and money saving benefits that include:
- Access to comprehensive benefit plans. This can include health insurance, retirement services, health care FSA/HSA programs and even life/disability insurances.
- Relief from payroll and HR administration overload. PEOs administer benefits, manage employee paperwork, process payroll and tax reporting.
- HR-related government compliance assistance. The PEO should be constantly monitoring changes in state and federal labor laws as well as advise you on needed company actions, unemployment claim administration, OSHA and employment verification, etc.
- Reduce your business’s liability. PEOs provide workers compensation coverage and claim resolution as well as employee handbooks. Some PEOs provide access to HR professionals for employee relations support, employee liability awareness training and EEOC claim investigation and mediation.
Additional considerations
Working with our PEO allowed my company to expand its presence into multiple states while shifting expansion and business risk. Employees have access to a wide array of benefits that were not available to a smaller business. Imagine being able to offer your employees Fortune 500-level benefits in a small business environment. That’s a powerful employee attraction and retention tool in a competitive environment.
Key decision-makers who are looking for a scalable solution that reduces risk and provides better benefits should consider a PEO for their company.
Marcus Rien, CPA owns MR Consulting LLC, a fractional CFO/COO and outsourced accounting services company. Previously, he was the controller for Lightstar Renewables, LLC, a solar developer focused on community solar and solar-agricultural opportunities (SolAg). An MNCPA member, Marcus has been the co-chair of the MNCPA YPG Leadership Committee since 2020 and was recently honored by the American Institute of CPAs (AICPA) as a member of the Leadership Academy’s 14th graduating class. You may reach him at mjrien@gmail.com, 320-250-3300 or www.linkedin.com/in/marcus-rien/.
