By Kaci Goff
By late 2020, experts had already started speculating about what the pandemic would do to the workplace. As a result, many workplaces moved to a “virtual first” mentality, and Zoom became a verb in a whole new way. That was especially true in the tech space, where companies quickly jumped into a remote work model. That doesn’t mean it’s been easy, though.
If you’re founding or scaling a tech startup, you’ve almost certainly felt the strain of pivoting to all-remote. Yes, you might have had it easier than, say, the manufacturing plant up the road. Still, remote work requires a redistribution of resources and reorganization of work processes no matter your industry.
On the surface, tech companies seem poised to thrive here. They likely already had digital workflows and communication systems, making remote work more accessible.
But founders and owners still need answers to a lot of questions. For example, do we still need physical workspaces? How can I make sure my employees are staying on task? Do my employees want to work at home or come into the office? And, perhaps most pressingly, how should I reallocate my resources to make sure my company functions its best under a remote work model?
Finding out what your team wants
Before tech companies start slashing line items and pushing their entire team remote, they should take a beat. Yes, some employees want to work from home. In fact, 36% of polled workers say they would choose the option to go remote over a pay raise.
On the flip side, though, a lot of remote workers report feeling isolated and having trouble differentiating their work from their home lives. So ultimately, while remote work is becoming normalized, it’s not necessarily right for every employee.
As a result, a lot of companies offer hybrid work models. This allows some employees to come in full-time, others sometimes, and some to stay home. A hybrid work model could be the key to giving your employees what they want, but it requires a more careful allocation of resources.
Most startups can’t, for example, pay to rent an office large enough to accommodate their entire team while also offering remote employees stipends for their home offices and telecommunications reimbursements. Generally, this only works if you have specific employees in the office on particular days, enabling you to control your in-office headcount. This way, you can rent a smaller office, freeing up the funding you need to set up your remote workers.
Tax implications of remote work
On a different, equally important note, if you decide to pursue a remote or hybrid model, you need to get clear about where your employees will be located. It’s one thing if you have a fully remote workforce when everyone stays in the same area. But people who work from home most likely feel that they have the flexibility to work anywhere, and they might take advantage of the opportunity to move across city or state lines.
Be advised that your employee’s relocation could establish a nexus for your business in their new home city/state. That means you’ll almost definitely need to register your business with their new home state, and you’ll likely have tax liability there.
To drill deeper, once an employee starts operating out of a new location, you might need to pay the relevant:
- State income and payroll taxes
- Franchise and corporate taxes
- Sales and use taxes
Plus, some counties and municipalities have income and payroll taxes to consider, too.
All told, you can’t just let your team go remote and assume it’s a more hands-off model. The physical locations from which your employees choose to work directly impact your tech company’s tax liability. To limit issues here, many employers offer remote work options but specify that the employee needs to work from a set location — like a city, county, or state — the majority of the time.
We built this guide to help you dig deeper into this issue and what you can do to avoid it.
Redistributing funding for remote teams
Now, assuming you have employee buy-in and you’ve sorted out the location issue, you’re ready to move toward a remote model. And for a lot of founders, a fully remote workforce can look pretty appealing. You’ll probably save a good chunk of change on things like:
- The cost of leasing an office
- Utilities to run that office
- In-office perks like free coffee, snacks, or lunch
- Cleaning services for the office
Go through your books and identify freed-up money that your startup can reallocate if you go remote. It will take some time, but it’s worth getting organized.
You also need to get the finances of a remote team in order if you want to secure future rounds of funding. Investors aren’t necessarily anti-remote work, but they will want to see that you’re handling your virtual office with the same level of care that you would an in-person team.
Less overhead doesn’t mean less employee investment
You might feel a bit gleeful flagging line item that you can get rid of if you go fully remote. But don’t assume that money goes straight back into the company coffers.
You still need to invest in your team, which means spending in certain areas. Most tech startups reimburse remote workers for phone and internet costs and offer stipends to set up their home offices, including buying a:
You might also want to allocate some of your freed-up money toward other remote work benefits, like child care.
It’s also worth noting that even if you don’t have your team come into an office on a daily or weekly basis, you may still need a physical space periodically for things like:
- Board meetings
- Holiday parties
You can rent these spaces on a one-off basis, but make sure you’ve allocated a sufficient budget for that.
As a tech company, remote work can offer you a world of opportunity, provided you’re smart about allocating your resources. If you want help there, talk to our team of startup-focused accountants. Get in touch today.