The pandemic has had a lasting impact on how we work, with many individuals working from home full-time or on a hybrid schedule. For businesses, there may be some confusion about how telework impacts a company’s business license requirements and other compliance obligations.
In this article, we address important questions asked about business license obligations that many businesses should consider as a result of having remote employees.
What are the legal considerations of having employees working from home?
There are a number of compliance items that you should consider related to work-from-home practices. These include the following:
- Payroll requirements: If a remote employee is located in a state where your business previously did not register for payroll taxes, you may need to file for employee withholding and unemployment taxes. An example where this may come into play is when an employee resides in a border state that is different from that of the workplace.
- Foreign qualification: If your company has not registered with the Secretary of State as a business entity, depending on the activities of the employee, you may need to register as a foreign business entity conducting business in that state. Many states offer a litmus test of "what constitutes doing business”. Review these requirements (which differ from state to state) to see whether they apply to your remote employees.
- Home occupation permits or licenses: Many cities require home occupation licenses or permits. Even though an employee may not be technically operating a business from their residence, a license or permit may still be required. Read Top regulated states for business licensefor information on the strictest states when it comes to business license compliance.
- Tax nexus: A tax nexus may be created if a remote employee is working from home in a state in which your company previously did not transact business. Depending on the nature of work conducted, your business may be subject to that state’s income or other tax laws and tax registration may be necessary.
Regulatory agencies often cross-check to identify if an entity has a business license. This is the leading cause of non-compliance among businesses. It also raises the need to search for the requirements to identify all license prerequisites. - Data privacy and security: As your business adds remote employees to your workforce, the avenues for security incidents increase. Ensure that you have security policies in place to prevent data loss and adherence to privacy regulations such as the California Consumer Privacy Act.
For more information, see Compliance considerations for remote employees.
Do jurisdictions require a business to have a general business license if an employee is working remotely in a particular city?
In addition to a home occupancy permit or remote licenses, there may be license requirements for both your company and your employee depending on the city or county and the business activities involved. For example, you may need to obtain a general business license on behalf of your company, as well as a home occupation permit for your employee.
There are also various thresholds for a company to submit payroll tax filings. Depending on the jurisdiction, these types of filings may be filed at the state level or along with the general business license at the local level.
