By 2030, Facebook will have at least half of its 50,000 employees working from home. Twitter and Square’s employees will be allowed to work wherever they feel most creative and productive, even once offices begin to reopen. In the UK, lawmakers are considering making it mandatory for employers to allow employees to work from home.
With work-from-anywhere likely to become the norm, many companies are struggling with how to maintain continuity, encourage collaboration, and maintain their cultures in a dispersed work environment. Citing challenges ranging from training and professional development to loss of spontaneity and erosion of corporate culture, some companies are even starting to push back on the idea that large-scale remote work is a good idea. Amazon became the most visible of these earlier this month when it announced plans to expand its physical offices in six U.S. cities, adding 3,500 jobs in New York, Phoenix, San Diego, Denver, Detroit, and Dallas.
All of these developments are pointing toward a future of work which is going to be less about absolutes, and more about flexibility and agility. There is no doubt that work-from-anywhere arrangements are going to represent a larger portion of the workforce than ever before. But that does not mean office buildings have seen their day. What it does mean is that businesses of every type are going to take a hard look at their corporate strategies and operational structures to make sure they are adaptive enough to handle diverse nature of the future of work.
Along the way, they are going to have to confront some operational challenges as well.
Weighing the Tax Implications
In the grand scheme of the COVID-19 pandemic, an issue like tax nexus may seem like a trivial technicality, but when you start to realize that the vast majority of large corporations have already had their employees working remotely for six months, and many plan to keep them there for the foreseeable future, it suddenly becomes a real management issue.
Under normal conditions, a corporation’s tax nexus is based on where its employees physically perform services. For example, an employee at a New York City-based business will have income tax withheld for New York, and the business will also have income tax nexus in New York because its workers are physically housed in the city.
However, when that New York City business suddenly has a large portion of its workforce operating out of their homes in the suburbs of Connecticut and New Jersey, it now has a nexus in all three states.
As my colleagues at Thomson Reuters recently explained, managing this situation can get very complicated in states that have similar income tax laws, but different tax rates. For example, California has a much higher tax rate than its closest neighbors. The same can be said for Illinois.
Similar regional challenges exist around the globe.
In London, for example, many employers have implemented a “London weighting,” which is an allowance of anywhere from 1% to upwards of 40% or more paid to those who work in the city center to compensate for the higher cost of living. In a world in which workers do not technically need to be located in high-cost city centers, will these types of benefits need to be renegotiated?
As the work-from-anywhere concept continues to take root, allowing employees to work from not only neighboring states, but entirely different regions and even different countries, corporate tax departments are going to need to not only adjust their formulas and forecasts but also keep close tabs on the diaspora of their employees. That will be true even if some of those employees end up embracing the nascent #vanlife movement and do not have physical addresses.
New Challenges for Auditors
The growth of remote work is also forcing a wholesale rethink of the internal audit process. The Public Company Accounting Oversight Board (PCAOB) recently convened a meeting of audit committee chairs of large U.S. companies, which found that risks associated with remote work were by far the biggest concern.
Specific risks included issues related to cybersecurity, ongoing communication with auditors, and overall productivity of the audit team. The concern, of course, is that with large swaths of the employee population working remotely, the ordinary checks-and-balances that would be in place for corporate IT systems and individual workstations are now being forced to operate within the confines of residential WiFi networks and across a geographically fragmented group of employees.
Audit committee members have understandably been concerned about developing the controls necessary to monitor and test for these risks, all of which takes time, resources, and collaboration capabilities that have been strained during the pandemic.
The fact that PCAOB is aware of these issues and working closely with internal audit teams to establish new standards and best practices is a good thing, but the fact remains that many companies are still flying by the seats of their pants when it comes to managing the audit process remotely.
Ultimately, the evolution that’s currently unfolding is one where corporations will need to have the best of both worlds. They’ll need the flexibility of remote, work-from-anywhere capabilities, along with the reliability of proven standards of audit control and predictable tax provision. Until this year, those would have been contradictory ideals, but, today, they are the new normal.
As we continue down this path, it will be critical for corporations to strike the right balance, keeping a close eye on best practices, while also staying adaptive enough to flex when the situation demands it. That’s going to require a rethink of the status quo for many operational processes that have been rooted for decades in the idea of a centralized workforce. While companies have generally done a great job getting things to work in a stop-gap fashion in response to the pandemic, developing these ad hoc processes into sustainable, long term management strategies is going to take some creativity.