5 Compliance Tips for Small Businesses for 2021

Few words strike more fear into the heart of small business owners than compliance. With a maze of regulatory requirements on the federal, state, and local levels, it’s not hard to see why.

Complicating the compliance landscape this past year has been the COVID-19 pandemic and its effect on the workplace — most notably, the transition to remote work.

Initially many businesses planned a return to the office for January 2021, but today more and more companies are saying they won’t go back until July. For 2021, Workest’s annual compliance tips center around the tricky landscape of remote work. Follow these 5 tips to keep your business compliant, regardless of where your employees are located.

1. Update your employee handbook

Employee handbooks are an important tool SBOs and HR teams can use to ensure employees and the employer are on the same page. In this single document, HR can communicate company policies and workplace expectations to reinforce compliance, as well as share company culture, mission, and values.

With the transition to remote work, it’s important to review and update your employee handbook as needed. Some policies will remain unchanged while others may need an overhaul. Rather than retrofitting old policies for an evolving workplace, HR or SBOs may need to write new ones.

Some policies will remain unchanged while others may need an overhaul. Rather than retrofitting old policies for an evolving workplace, HR or SBOs may need to write new ones.

2. Pay close attention to state tax withholding

Remote work may have changed tax withholding for your business. Be sure you understand your business’ obligations or risk falling out of compliance with the IRS or state tax agencies.

Employers are on the hook for withholding federal taxes for their employees. And in most states, employers must also withhold state taxes for the state in which an employee is performing work. This is known as the physical presence rule. When the majority of employees work from the same location(s), this is easy enough. But the transition to remote work has complicated tax withholding for employees who live in a different state than their (previous) primary workplace.

In these cases, to protect employees from having a dual tax burden — paying taxes to both the state in which they work and the state in which they live — many states have reciprocity agreements, which allows the employee to simply pay taxes to the state in which they work. Because many employees are now working from home, this essentially amounts to the state in which they live.

But that’s where things can get complicated. In the 6 states which have historically operated under the convenience of employer rule — Connecticut, New York, Delaware, New Jersey, Nebraska, and Pennsylvania — an employee’s tax obligations depend on whether the employee is working from home for their own convenience or for their employer’s convenience.

For some businesses additional attention to tax withholding is unnecessary. For others, like businesses located close to state lines, or in major cities where employees may have second homes, SBOs need to ensure their HR team has a handle on what taxes are owed and where.

3. Qualify your business in other states, if needed

If you have your business registered in one state but you have employees working (remotely or otherwise) in another, you may need to qualify your business there as well. This is referred to as foreign qualification.

If you have your business registered in one state but you have employees working (remotely or otherwise) in another, you may need to qualify your business there as well. This is referred to as foreign qualification.

For example, if your business is an LLC, LP, LLP, or corporation registered in State A, but you have full-time remote workers living and working in State B, it’s likely you’ll need to go through the foreign qualification process in State B.

Doing so would then require you to meet certain compliance requirements of State B, like filing an annual report there or having a registered agent there. A registered agent is a point of contact for your business who has an address in the state you’re doing business in. They must have a physical address — not a P.O. box — and be able to receive documents on your behalf during regular business hours.

Foreign qualification may not only be required if you have remote workers in another state, but also if you routinely “transact business” in that state, which includes but is not limited to: selling goods and services there, routinely meeting with clients in that state, or executing contracts there.

Every state is different, and there is no one-size-fits-all rule when it comes to foreign qualification. Check with your business attorney to make sure you’re in compliance with the various state laws governing the states in which you are transacting business.

4. Be mindful of workers’ compensation for remote employees

If an employee is injured working remotely, they still may be covered under workers’ compensation. For an employee injury sustained at home to be eligible for a workers’ compensation claim, the injury must meet certain requirements.

According to the Occupational Safety and Health Act, “Injuries and illnesses that occur while an employee is working at home, including work in a home office, will be considered work-related if the injury or illness occurs while the employee is performing work for pay or compensation in the home, and the injury or illness is directly related to the performance of work rather than to the general home environment or setting.”

Employers can help prevent work-related home injuries with the right training. For example, consider offering a refresher on proper ergonomics if most of your employees are knowledge workers. Make an infographic, short video, or remote work environment ergonomic checklist and share it with employees via email and store it online on the company intranet, if applicable. Include the document(s) in your onboarding materials and make sure you can track completions.

5. Share workplace posters virtually

To remain in compliance, businesses are required by law to post several labor-rights and workplace safety posters and notices in conspicuous locations in the workplace. The federal requirements include posters for:

• Fair Labor Standards Act (FLSA)
• Family and Medical Leave Act (FMLA)
• Occupational Safety and Health Act (OSHA)
• Equal Employment Opportunity (EEO)
• Families First Coronavirus Response Act (FFCRA)

For those operating their business on-site, this is easy enough. Simply hang the posters in common areas where employees can readily access the information. For employers who continue to operate remotely, provide virtual notice to your employees. Some options include:

• Share with employees via email
• Post them to company intranet
• Include in your online-accessible company handbook and in onboarding docs

Use the Department of Labor’s eLaws Advisors Firststep Poster Advisor resource to make sure you’re complying with federal laws, and be sure to check your state-specific requirements.

2020 has been full of surprises, hurdles, and adversity for SBOs across the country. To stay sane, safe, and compliant in 2021, lean on a trusted resource like Workest for answers to all your most pressing questions. Join 30,000 other small business owners and HR professionals and subscribe to Workest’s weekly newsletter today.