5 Compliance Challenges for Hybrid Workplaces

Despite their advantages, flexible work models come with potential legal challenges. Keep these compliance obligations in mind for remote work policies.

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Notable Compliance Requirements in 2023

Here's what you need to know:

  • Legal obligations pertaining to hybrid work policies often revolve around wages and hours and exempt versus nonexempt status
  • Compliance obligations also often pertain to state tax withholding and expense reimbursement
  • If you have remote or hybrid employees, implementing measures for preventing discrimination and online harassment should also be a priority

Employers have a lot to gain by adopting a hybrid work model. One distinct benefit is that it delivers the best of both worlds — meaning employees sometimes work onsite and sometimes remotely. This allows you to meet employees’ need for flexibility, reduce your operational expenses, and maintain some level of direct control over your workforce.

In fact, studies show that “Workers prefer a hybrid model 83% of the time.” Furthermore, “Hybrid work models are used by 63% of high-growth companies.”

Despite these advantages, hybrid work models come with potential legal challenges. So, before you roll out hybrid work policies, make sure you know your legal obligations. Among other things, these obligations often revolve around:

  • Wages and hours
  • Exempt versus nonexempt status
  • State tax withholding
  • Expense reimbursement
  • Discrimination and harassment

1. Wages and hours

The Fair Labor Standards Act (FLSA) requires covered employers to pay nonexempt employees for all hours worked. However, what constitutes “hours worked” can be tricky for employers with remote or hybrid teams.

The bottom line is, onsite, remote, and hybrid employees must be paid for all time “suffered or permitted” to work. This means you must pay them for their time worked if you know or have reason to believe they performed the work, even if they did the work without your consent.

Make sure you effectively communicate work times and locations to your hybrid employees. They should know exactly what tasks to execute from home and which ones to do from the physical work site.

This is crucial, because even time spent responding to emails off-the-clock from home might be compensable under the FLSA. Similarly, if the employee begins to work at home and then travels to the office then their commute time might be compensable.

Other wage and hour considerations for hybrid employees:

  • Timekeeping
  • Rest and meal periods
  • On-call time
  • Lectures, meetings, and training time
  • State and local wage and hour laws

2. Exempt versus nonexempt status

Generally, employers must classify hybrid employees (as exempt or nonexempt) under the FLSA or applicable state law. This is important, because different laws — e.g., minimum wage and overtime — often apply depending on whether an employee is exempt or nonexempt.

If a hybrid exempt or nonexempt employee moves to a different state, then the laws of the new state may apply. These laws may cover the following (and more):

  • Pay rates
  • Overtime eligibility
  • Overtime calculation rate
  • How employee time tracking should happen
  • Minimum paydays
  • Pay stub information
  • Sick leave
  • Paid family leave
  • Poster requirements

3. State tax withholding

Employers generally withhold state employment taxes based on where the employee works. So, if a remote employee works fully from home, you would withhold state taxes for their home state.

Make sure your business is registered as a withholding agent in the correct state.

Likewise, if a (hybrid) employee works from home and from your office, which are both in the same state, then you would withhold state taxes for that state.

However, things become more complex if a hybrid employee works from home in one state plus works from the office which is in another state. This can potentially create a business presence called a “nexus,” which causes income tax obligations in both the home and work states.

Although some states waived the nexus rule during the COVID-19 pandemic, it’s a good idea to check for new developments on that front. Also, make sure your business is registered as a withholding agent in the correct state.

4. Expense reimbursement

As more employees use their home for work, the issue of expense reimbursement is becoming more prevalent. According to 1 report, “Some prominent U.S. companies are being sued by remote workers alleging that their employers had a legal obligation under state law to reimburse them for work-related expenses.”

Therefore, make sure you know your legal obligations regarding reimbursing hybrid employees for business expenses.

The FLSA does not directly require expense reimbursement. That said, you must reimburse nonexempt employees for work-related expenses if those expenses cause their wages to drop below the minimum wage, or cut into their overtime pay.

On the state side, a growing number of states are requiring employers to reimburse remote and hybrid employees for specific work-related expenses. These states include:

  • California
  • Illinois
  • Iowa
  • Massachusetts
  • Minnesota
  • Montana
  • New Hampshire
  • North Dakota
  • South Dakota
  • Pennsylvania

Washington, D.C. and the city of Seattle have expense reimbursement laws, as well.

As an example, California law requires that employees be reimbursed for “all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.”

The reimbursements may cover work supplies, communication devices, travel costs, meals and entertainment, and certain legal costs the employee incurs.

Keep in mind, it is best practice to reimburse all employees for reasonable business expenses — such as travel, uniforms, tools, and equipment — even if no law requires it.

5. Discrimination and harassment


Under federal anti-discrimination laws, employers cannot make employment decisions based on a person’s race, color, national origin, sex, religion, disability, or genetic information.

This means your hybrid work policies and practices cannot discriminate against candidates and employees in legally protected groups. Note that many states and localities have anti-discrimination laws, which may be stricter than federal law.

You can prevent discrimination claims by developing written policies that clearly state the parameters for allowing or refusing an employee’s request for hybrid work. Also, your managers and HR team should avoid discrimination when making hiring decisions, including for hybrid positions.


Unfortunately, with remote and hybrid work comes the threat of online workplace harassment.

According to 1 survey, “harassment and hostility have moved from physical and in-person actions to online and technology-based form.” These digital interactions may occur by videoconferencing, text, email, group chats, and more.

The survey found that the following people encountered increases in harassment and hostility at work:

  • Asian people
  • Black people
  • Indigenous people
  • Latinx people
  • Women
  • Nonbinary people
  • Transgender people
  • People older than 50

If you have remote or hybrid employees, implementing measures for preventing online harassment should be a priority. For example, provide employee training on harassment and establish written policies that strictly prohibit harassment in the workplace, whether onsite, remote, or hybrid.

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Depending on where your hybrid employees work, you may need to consider other compliance issues. For example:

  • If they work partially in another country, you must take applicable international laws into account as well as U.S. laws.
  • You will need to ensure your hybrid employees are classified and treated as employees, not as independent contractors.
  • In most states, employers must provide workers’ compensation coverage for onsite, remote, and hybrid employees. But things can get thorny if a remote or hybrid employee is injured while telecommuting or working from home.

Employers can face costly penalties for failing to comply with laws affecting hybrid employees. So, work with your legal team to ensure your hybrid policies and practices are compliant.

It’s also important to have the right workforce management technology in place. You can simplify HR, payroll, and benefits for your hybrid workforce by leveraging a people operations platform like Zenefits.

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