Wage and Hour Issues Involving Remote Employees
A 2017 Gallup survey found that nearly half of U.S. employees (43%) spend at least a portion of their working time away from their employer’s offices. This represents a 4% increase since 2012 and a whopping 34% increase from 1995 and the trend appears to only be gaining momentum. Work-from-home opportunities and flexible scheduling options not only influence a position’s attractiveness to applicants and employees, but also may benefit companies by, among other things, improving employee retention and morale and widening the pool of available employee talent. There are, however, important potential wage and hour pitfalls that employers should consider when permitting employees to telecommute or work remotely on a full-time, part-time, or occasional basis.
As an initial matter, any arrangement which permits some or all employees to work remotely should be addressed in the company’s employee handbook or personnel policies. At a minimum, the handbook should include clear timekeeping policies for non-exempt employees and address guidelines for tracking hours worked, prohibitions on off-the-clock work, and requiring permission before working overtime.
Employers that plan to offer more extensive telecommuting programs should consider implementing policies to address:
- Who is eligible to telecommute, including, for example, procedures for requesting approval to telecommute and the conditions for telecommuting;
- Employee responsibilities while telecommuting, such as accessibility during business hours, communication expectations with colleagues and supervisors, secure access requirements and proper protection of company proprietary information while working remotely, and conditions for using company-owned equipment; and
- Employer responsibilities, such as the availability and extent of technical support for remote employees and reimbursement of any telecommuting expenses.
Employers that have remote workers across multiple states must be sure to comply with the payroll laws in each such jurisdiction–not just the laws in which the company’s home office is located. This requires, at a minimum, knowing the following:
- The applicable minimum wage;
- Whether the state exemption overtime calculation laws differ from the federal Fair Labor Standards Act (FLSA);
- Payday frequency requirements;
- Requirements as to what information must appear on paystubs, such as paid sick leave accruals; and
- Laws addressing payment of final wages and payout of accrued, unused vacation.
Note that there can be payroll tax implications when an employee works in a state other than the state in which the company maintains a physical presence. Generally, under the “physical presence rule,” employees pay taxes in the state in which they render services; however, a minority of states do not follow this rule so employers are advised to contact a tax expert to ensure its compliance with each jurisdiction’s tax laws.
Employers are sometimes tempted to classify individuals who work remotely as independent contractors or consultants because they assume that they don’t have the requisite physical control for the offsite individual to be an employee; however, that is only one factor in the analysis of whether an individual should be classified as an employee or independent contractor. Employers need to look beyond the physical location of the individual and analyze how much overall control the employer has over the individual. This includes, for example, looking at the level of instruction and direction over the work; the degree of integration into the company’s business; the continuity of the relationship; payment of expenses; provision of materials and tools; realization for profit or loss; and exclusivity. See e.g. IRS 20-Factor Test. Employers can be subject to significant fines and penalties for misclassifying employees as independent contractors.
Employers with telecommuting employees should be sure to avoid potential pitfalls related to compliance with state and local wage and hour laws. For example, certain states, including California, Pennsylvania, and Oregon, have different criteria for determining whether a position classifies as overtime exempt. Where applicable state law differs from the FLSA, the stricter state exemption standard must be followed.
Once it is determined that a remote or telecommuting employee is non-exempt under applicable law, the employer must then ensure that it is complying with laws addressing meal and rest breaks and payment of overtime. For example, a number of states, including Nevada, Alaska, Colorado, and California, require that non-exempt employees be paid overtime on a daily, not just weekly, basis. Additionally, California has also recently rejected the FLSA’s de minimis doctrine, meaning that employers of California employees cannot generally disregard “insubstantial or insignificant periods of time beyond the scheduled working hours” when recording time worked. Troester v. Starbucks Corp., 5 Cal.5th 829, 421 P.3d 1114 (Cal. S. Ct. 2018).
The FLSA is clear that non-exempt employees must be compensated for all hours worked, including all work performed at a remote location (see 29 C.F.R. § 785.12); however, time tracking for remote, non-exempt employees can be a more difficult task given that the employee cannot be physically observed in the workplace. Employers with a sizeable number of non-exempt, remote employees may wish to consider implementing electronic systems for properly tracking hours worked. Not only does the law require proper tracking, but such systems can be invaluable should the company ever find itself defending against an employee wage claim. Such a system could include requiring remote workers to log in and out of the company’s computer system when working remotely; engaging task-monitoring devices to monitor URLs and apps accessed; using software that tracks keystrokes, takes randomized screenshots of the remote employee’s computer screen, or otherwise monitors productivity. Of course, any such monitoring should be appropriately described in the company’s computer and electronic communications policies. Regardless of whether a company uses a time tracking and/or productivity monitoring system, if it knows or has reason to know that a non-exempt employee is working beyond his or her shift, notwithstanding a policy prohibition from doing so, it must count the additional hours towards time worked and compensate the employee accordingly. 29 C.F.R. 785.12.