December 1, 2021

Workplace mobility: What it means for stock plan administrators

The COVID-19 pandemic has forced major changes in the global workforce, with more employees than ever shifting to virtual setups. Untethered from physical offices and empowered by technology, more people are packing up for new locations. A recent study found that 36.2 million Americans are anticipated to be remote by 2025—an increase of 16.8 million people from pre-pandemic rates.1

But broader horizons for employees can mean bigger headaches for employers. And many stock plan administrators are scrambling to deal with the tax implications of embracing a "work from anywhere" mindset.

As mobility becomes a new employee expectation, tomorrow's stock plan administrators will need to be ready to adapt.

"You moved to where?"

The normalization of virtual work can feel like a free pass for employees to work from anywhere. But our clients reveal that too often their employees aren't reporting the move. Even when managers are alerted, they may be more focused on the employees' ability to keep working without disruption than on notifying HR, finance, and equity teams about the change.

That awareness gap can be costly.

Any leniency about employee movement that regulators granted at the beginning of the pandemic is ending. Now, noncompliance brings risk for employees—and for firms, which have the regulatory responsibility to report these changes in status to avoid penalties.

More mobility, more taxation complexity

Not all mobile employees are alike, but all have tax and income sourcing implications for your stock plan.

For example, an employee who moves from one state in the U.S. to another for an indefinite period of time is a "transfer" and will likely change their payroll to their new state. On the other hand, an employee who works in another state for a short period of time could be regarded as a "traveler" and would likely remain on their home payroll unless they establish residency. And employees who perform work outside their state of residence may have taxable income in the other state.

Determining residency can be confusing, especially for people who change locations frequently. Each state has its own rules for establishing residency, which are usually more complex than the number of days spent in the state. The intention of the stay, familial ties in the area, and availability of housing could all play a role.

For employees, moves might trigger new responsibilities regarding income tax, trailing tax liability, and the potential of double taxation, among others. At the corporate level, there are implications as well: When employees move to a new location where the company doesn't already have an entity, the company could become subject to new corporate taxes.

With more employees on the move, equity teams are now working in a landscape that's significantly more challenging—one that requires a new level of diligence from stock plan administrators.

Four actions for the stock plan administrator of the future

Given the challenges of tracking and monitoring employee moves and managing the tax implications of mobility, where should stock plan administrators focus their efforts? Four key actions rise to the surface:

  1. Educate employees.

Encouraging employees to self-report moves out of the state or country starts with helping them understand why it matters. Consider an education campaign to reach employees with messages about how their moves could potentially affect their taxes and where to report changes in status. Just be sure to keep it focused on reporting and avoid appearing to offer tax advice.

  1. Evaluate your systems.

When it comes to accurately tracking and updating employees' demographic data, your tracking system should be robust. It may be helpful to explore different tax mobility systems and assess your current functionality to identify gaps.

  1. Bring in support.

You don't have to go it alone—nor should you. More stock plan administrators are working directly with tax advisors to stay up to speed on global and domestic regulations and identify potential tax implications of mobile employees. A growing number of companies are also adding dedicated mobility staff to their equity teams to provide specialized support.

  1. Develop a remote work policy.

More companies are developing remote work policies to help guide decisions about which jurisdictions employees can work from. One size doesn't fit all, and each company will need to determine the best structures and expectations for its business. Policies should be developed in collaboration with leaders in HR, payroll, and legal, as well as a tax advisor.

A foundation for the future

Achieving 100% compliance can seem like an intimidating goal. But now is the time to lay the foundation for the future. Even taking partial steps to address mobility issues is better than waiting until you can achieve total compliance. For example, you could start with compliance at the executive level before taking on the entire employee population.

Wherever you begin, it's essential to do it now. Mobility is here to stay, and by creating systems and policies to help track and address it now, you can better position yourself to serve the workforce of the future—and the future of stock plan administration.