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The Hidden Cost of Letting Workers Telecommute

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Re: The Hidden Cost of Letting Workers Telecommute

#31

Post by jaz »

tomjen3 wrote: post #19
spolsky wrote: post #17

Earlier quoted context omitted.

Good luck with that. The IRS has very specific rules for who can be considered an employee and who can be considered a contractor. Attempting to treat people who should be employees as contractors is one of their number one enforcement goals, because contractors don't have withholding and are therefore far less likely to pay their taxes.

Would that matter, as long as the contractors only work one of projects which are time limited?

It depends on the degree of control you exercise over the individual, if the individual is offering their services to the public, if the individual furnishes their own tools to perform services, if the individual performs services in their own facilities or yours, among other factors[1] weighted differently in each situation.

PDF warning: [1] http://www.irs.gov/pub/irs-utl/x-26-07.pdf see pages 3-5

Re: The Hidden Cost of Letting Workers Telecommute

#32

Post by narcissus »

lutorm wrote: post #23
sp_ wrote: post #20

Earlier quoted context omitted.

As far as I know there is no visa that allows foreigners to travel to the US and work remotely back home. It would be a breach of the Visa Waiver program (or any other visa) which can lead to deportation. I'd like to hear from people who did this, told the immigrations officer about their plans and were not turned back on the border.

I'm pretty sure you can travel under VW and still do business for a foreign corporation. Like if I come to the US for a trade show or to negotiate a deal, I can come under VW. I don't know what the specific rules are (I'm pretty sure you can't work for a US corporation) but I don't think there is a blanket prohibition on doing work for a foreign company.

That sounds similar to my situation when I first moved to Canada from Australia: I continued to work for the company in Australia, and so I wasn't required any special visas or permits to work that while in Canada.

However, I did have to continue to extend (and therefore satisfy the requirements of) the normal visitors visa (which seemed to be waived for a certain period of time, but then I had to renew it).

Re: The Hidden Cost of Letting Workers Telecommute

#33

Post by scottw »

Discovery (DISCA) faced this issue in 2008 and decided to lay off all employees who lived in a state with this tax nexus law (I was one of them). There were a total of three employees in my state, but there were probably scores of employees around the country. They probably saved several million dollars annually in sales tax by doing this (back of the envelope calculations). A handful of the employees affected in my group were re-hired as contractors.

Re: The Hidden Cost of Letting Workers Telecommute

#34

Post by voidpointer »

cosgroveb wrote: post #13
pavel_lishin wrote: post #9

Earlier quoted context omitted.

What about happening to answer the phone while on vacation? Or perhaps working on a server that's located in another state?

Well, Texas has tried recently to say that simply having a server in their state creates a nexus for sales tax purposes...

I have no idea how the US tax system works. But how about this thought: from saying you are taxable if running servers in some state, it wouldn't be a big leap saying "your javascript code runs in browsers on computers that are in our state and you are therefore taxable"...

Re: The Hidden Cost of Letting Workers Telecommute

#35

Post by sp_ »

nandemo wrote: post #30
sp_ wrote: post #20

Earlier quoted context omitted.

As far as I know there is no visa that allows foreigners to travel to the US and work remotely back home. It would be a breach of the Visa Waiver program (or any other visa) which can lead to deportation. I'd like to hear from people who did this, told the immigrations officer about their plans and were not turned back on the border.

IANAL, but say you're a manager of BigSouthAmericanCorp (maybe Euro/Asian, etc, your mileage may vary) going to a meeting with BigAmericanCorp. Then you can use the Business visa, which is the same as Tourism visa. As long as you're not working for an American employee, it's OK to be in US on work temporarily. So if I were going to US to work on my own business temporarily, I'd either go as a tourist or say, "Oh, I'm…

First, you are confusing visas. The tourist visa is not the same as the visa waiver. There is a tourist visa, it's called B-2 and it does not allow you to do any business or work. Visiting with the visa waiver program means visiting without a visa.

Next, for short trips, visiting without a visa is equivalent to having a business visa (B-1). It allows you to meet with US clients, customers, partners, and so on and it allows you to go to conferences. It does not allow you to work.

See as a recent example from Hacker News: http://www.noop.nl/2011/06/american-learning-experience.html

Re: The Hidden Cost of Letting Workers Telecommute

#36

Post by mikeryan »

scottw wrote: post #33

Discovery (DISCA) faced this issue in 2008 and decided to lay off all employees who lived in a state with this tax nexus law (I was one of them). There were a total of three employees in my state, but there were probably scores of employees around the country. They probably saved several million dollars annually in sales tax by doing this (back of the envelope calculations). A handful of the employees affected in my…

Note that as a company you can't just re-hire as W2 contractors. Generally (as the article states) you need to have the employees form some sort of corporate entity or work for a corporate entity. Both employment and tax law will treat solo W2 contractors (or even single member LLCs) as full time employees if you're working full-time for a single entity.

A lot of times companies will hide these types of contractors behind agencies, but its a tricky balance. Point being if you run a small company and are running into these types of issues talk to an accountant and or an employment attorney before thinking you can just hide full time employees behind a "contractor" label, its not a fool proof solution.

Re: The Hidden Cost of Letting Workers Telecommute

#38

Post by wisty »

jsiarto wrote: post #26
falsestprophet wrote: post #22

Earlier quoted context omitted.

Some questions for Joel/anyone else: Do you need to pay corporate income taxes in these states as well? It is possible avoid state income taxes and collecting sales taxes by hiring these employees as independent contractors (if you were willing to give them whatever autonomy was sufficient)? Do you know if there similar tax consequences to hiring employees who are residing overseas? (Of course the real answer to all…

We pay proportional taxes on the % of income that comes from other states. For example, if 80% of our revenue comes from Illinois and 20% from Michigan--we only pay taxes on the 20% from Michigan. "Doing business" (as far as our accountant is concerned) is having billable clients in those states--generating revenue. We've had employees in 3 states (MI, IL and FL) and the only concern is making sure you are meeting th…

I've found that calling government offices can sometimes be extremely helpful.

Civil servants are often very smart, and sometimes very bored. Also, unless they are in a position where they regularly face the public, talking to "civilians" can scare them a little - they don't want to be accused of stuffing up. (As long as you are talking off the record, not getting written advice - they hate paper-trails. Written advice is to "double check" that it's all OK).

They can really go out of their way to give free advice.

Re: The Hidden Cost of Letting Workers Telecommute

#39

Post by enjo »

scottw wrote: post #33

Discovery (DISCA) faced this issue in 2008 and decided to lay off all employees who lived in a state with this tax nexus law (I was one of them). There were a total of three employees in my state, but there were probably scores of employees around the country. They probably saved several million dollars annually in sales tax by doing this (back of the envelope calculations). A handful of the employees affected in my…

A handful of the employees affected in my group were re-hired as contractors.

Those states are going to have a field-day in the event of an audit. We had a ton of trouble recently with a contractor (who worked on his own time, with his own equipment, for a specific duration on a project)... I can only imagine what states will see when they find out they brought back former employees. It's going to be very difficult to justify them as contractors.

Re: The Hidden Cost of Letting Workers Telecommute

#40

Post by wisty »

jdp23 wrote: post #3

As somebody whose last startup had people working remotely from four different states ... yikes! With state budgets as tight as they are, it's no surprise to see them looking for reasons to tax out-of-state companies. And it sounds like it's still not clear just how much tax liability this will lead to. But wow, it sure sounds like a minefield for startups.

Yep. Better to just hire someone offshore then. Killing domestic telecommuting is not going to be good for jobs.
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