You and your valued employees who work far from headquarters can encounter two administrative issues that possibly neither of you contemplated when the remote-working arrangement was agreed to:

1. What happens to health benefits if there are no providers in your plan’s network where the remote employee has moved, and
2. When employees move to another state, which taxing jurisdiction has a claim on them?

Here are points to consider and some alternatives.

Remote Employee Health Benefits

When it comes to health benefits for remote employees, you have a few options, but their practicality depends on your circumstances. Suppose, for example. A remote worker lives too far from the geographic area covered by the preferred providers in your health plan’s network to make routine visits. He or she could, however, make the trip if a severe condition required a physical examination.

The most straightforward approach in that situation could be to arrange for the employee to use telemedicine services with in-network providers for most needs. In-person would be available when necessary.

Be aware that such a customized arrangement, if even possible, could carry high extra costs. But that may not always be a practical option, particularly if you have multiple employees who are working remotely and are too far away from your plan’s provider network. In that case, you may need to ask your health plan administrator if a special arrangement can be made with a primary care group near where remote employees are working.

If you’re expecting a significant increase in the proportion of your staff that works remotely, another possibility would be to switch your health plan provider to one that operates nationally. The downside to that option is it could take a year or more to implement fully, and not many plans have that capacity and aren’t available in all areas.

Another possibility would be to pay remote employees a stipend to cover the cost of securing an individual health policy. That could be expensive, depending on such factors as:

• The cost of the coverage,

• Whether it’s necessary to keep the employee on your regular health plan for Affordable Care Act compliance purposes, and

• Whether the arrangement, which may look like a “raise,” could create pressure from other employees to be treated “fairly” by also receiving the equivalent of the stipend.

While that third possibility isn’t probably one you would encounter, it’s worth keeping in the back of your mind.

The ICHRA Option

Finally, if you’re willing to zero-base your entire health benefits strategy, you might consider an Individual Coverage Health Reimbursement Arrangement (ICHRA). Instead of having your company health plan cover employees with an ICHRA, you reimburse all employees eligible for health benefits for the cost of securing coverage on their own.

ICHRAs have been available only since 2020 and are subject to strict IRS regulations to assure compliance with the Affordable Care Act. You probably wouldn’t switch to an ICHRA to support a few employees working remotely. But if an ICHRA would make sense for other reasons, it could help your effort to enable remote workers to remain covered.

Battle of the States

What about the state payroll tax obligations of out-of-state remote employees? This issue has been a thorn in the side of many employers since the pre-COVID-19 days. Rules vary from state to state, but the growth of out-of-state remote working arrangements has brought some employers home for the first time.

Employees usually receive a tax credit in their state for taxes paid to another state and thus don’t face double taxation. But this can still be a nuisance for employers to administer and for employees who must file tax returns in two states. Plus, not all states allow for that offset.

Convenience Rule

Six states, including New York, operate under a general principle called the “convenience rule.” An example might be an employee who works for a company whose office is in New York but who telecommutes from New Jersey for the employer’s convenience. New York considers the days the employee telecommuted from New Jersey to be days worked in New York. The only way would be for the employer to demonstrate a business necessity for the employee working from New Jersey and establish a “bona fide” satellite office there.

According to the Tax Foundation, other states that operate under the convenience rule are Arkansas, Connecticut, Delaware, Nebraska, and Pennsylvania. Massachusetts temporarily adopted that policy when the pandemic was in full force. Neighboring New Hampshire challenged it in a case that made it to the U.S. Supreme Court but was shot down.

Final Thoughts

The need for clarity is the bottom line for employers who are either putting together a remote work policy or dealing with the implications of having already given employees that opportunity. Employees should know how their status as remote workers affects their health benefits and the payroll tax implications that go with that status. Given the technical nature of the subject, be sure to consult with your accounting professional as you weigh the pros and cons.