Bay Area companies start reining in the work-from-home free-for-all

In a sign that companies are starting to clamp down on where remote workers can be based, Lyft is requiring its remote workers to be in one of 36 states where the company is already registered to do business.

Employees working in one of the unfavored 14 states must move by month’s end, the Wall Street Journal reported, citing a Lyft internal email that the newspaper reviewed.

Lyft did not immediately respond to a request for comment Monday on its new restrictions for remote workers, but the move highlights some of the emerging tax and administrative headaches that come with a fully distributed workforce.

“I say to these company leaders, ‘You must have a policy that says no employee can relocate without asking first,’” said Jenn McCabe, a partner in the outsourcing services group of San Ramon accounting firm Armanino. She said registering to do business in another state comes with an ongoing cost of $5,000 to $10,000 every year — plus increased paperwork.

Some employers only discovered they had workers in unexpected places when W-2s landed in mailboxes in January. Income taxes might not have been correctly withheld in the state where the employee worked much of the past year because the employer wasn’t aware of the move.

Facebook, another company that has permanently embraced remote workers, requires employees to get prior approval before moving to another state, given the tax implications that can come with such a move. Facebook decided against tracking employees’ location through their VPN usage, the Wall Street Journal said.

Square, which was among the first Bay Area companies to adopt a policy letting employees work remotely permanently, declined Monday to comment on whether it is also adding restrictions on where its remote workers can be based.

With many remote workers changing location during pandemic-related shutdowns, employers have to grapple with whether those employees have permanently moved to a new home state, or are just there temporarily, which largely determines how they will be taxed.

Bay Area workers who decided to work remotely from Texas and Florida during the pandemic might be arguing that they have moved permanently to these no-state-income-tax states. 

That can put companies like Facebook in the middle, trying to ascertain through the eyes of taxing authorities whether a Bay Area employee has permanently left California. The stakes are high because the Golden State has the nation’s highest state income taxes, starting at 9.6% and topping out at 13.3%.

Bay Area workers who moved out of California during the pandemic may not realize that cutting ties to the Golden State requires more than just saying you’re no longer a California resident. California is expected to be diligent in making sure it gets all the tax dollars the state thinks it is owed if it’s not satisfied an employee moved permanently.

Paul Bleeg, a partner at EisnerAmper in San Francisco, said, “California will be scrutinizing returns where the taxpayers claim they are no longer a California resident.”