Work From Home - Beyond The Decision
In today’s business world an employee’s desire to work from home (WFH) seems to outweigh many historical HR policies. But if you have or will be considering economic incentives for an expansion, approach WFH with caution.
Let’s face it, when it comes to managing the work from home surge it’s not a one size fits all solution. This new WFH reality could result in sobering consequences for your business, such as clawback, non-compliance, or a reduction in incentives from state and local governments. Company commitments are required (jobs, payroll, capital investment), in exchange for financial incentives, but are all jobs created equal? There are several factors pertaining to WFH employees that you should consider.
In regard to WFH strategies what we know is that solutions not only look different from company to company but state to state and community to community as well. For three years this complex discussion has been at the center of talent retention/attraction and short-term/long-term investment decisions for business and government leaders. Naturally, there continues to be uncertainty regarding this topic by both parties. As a result, business leaders will need to look beyond the operational impact and be aware of the affects to existing and future financial incentive agreements.
The Challenge? Traditionally a company will commit to creating jobs, payroll, and capital investment over a period of time in exchange for financial incentives. To remain compliant the company must hit all of its commitments on schedule. Being deemed non-compliant can expose companies to paying back all or some portion of the incentive benefits they have received from that government entity. Historically economic development organizations have not qualified WFH employees for incentives or counted these jobs toward company commitments.
Tax revenue and disposable income are essential to the sustainability and growth of a community. Reducing operational costs while maintaining flexibility are essential to the sustainability and growth of a business. Understanding a community's vision and strategy as it relates to flexibility for employers regarding WFH will be important. This community strategy will likely serve as a base for all current and future discussions. My objective is not to conclusively solve this challenge, but to offer insight on how your company can be affected by the WFH revolution beyond the internal affects to operations, culture and talent.
Where the Rubber Meets the Road
So, do you know how to interpret your WFH language within your incentive agreement? Are you compliant? Are you certain about what you are committing to? Do economic conditions matter in compliance? These are all questions you should seek answers to.
The pandemic igniting the WFH surge has disrupted all existing incentive agreements. As mentioned earlier, WFH employees traditionally have not qualified for financial incentives. Many existing agreements at local and some state levels are site specific. Meaning to remain compliant with commitments the employee must report physically to the site(s) captured within the agreement. However, some states over the past 2-3 years have amended legislation to accept WFH employees toward company commitments. For example, Ohio modified its existing Job Creation Tax Credit (OJCTC) in 2020 to allow WFH payroll to be eligible for the credit. The OJCTC is a refundable credit measured by a percentage of qualified payroll that is applied to the Commercial Activity Tax (succession to Ohio Corporate Income Tax). But at a local level despite a significant increase in remote work, many jurisdictions, especially urban cores have not disclosed their policies on existing or future agreements.
Mitigate Risk and Avoid Exposure
Many employers have adopted hiring programs regardless of residency but even the most flexible state and local jurisdictions require WFH employees to be residents to qualify for company commitments or to be eligible to receive benefits. Employee withholdings are typically the driver to qualify for incentives and compliance. But, requiring employees to be physically on site, regardless of withholdings, remains inconsistent across the country. Because not all jobs (employees), specifically WFH employees are qualified the same across jurisdictions, businesses must be certain to clearly understand each jurisdiction’s policies and rules, prior to committing to metrics or reviewing agreements.
The state of Ohio via the Ohio Rev. Code Ann. § 122.17 (A)(8) defines a qualifying WFH employee as “an employee who is a resident of this state and whose services are supervised from the employer’s project location and performed primarily from a residence of the employee located in this state.” This particular qualifying definition speaks to residency, site supervision/reporting, and where time is most allocated. Understanding each component when interpreting legislation is important to reduce company exposure.
Because the increase of remote work aligned with the pandemic, many companies with existing incentives have leaned on language captured in most agreements speaking to performance being impacted by market conditions. This language can be subject to interpretation and is typically not tied to a specific duration, but in our experience, this has helped these discussions but only serves as a temporary resolution.
As you can imagine the inconsistency in language and frequency of change around WFH can require much due diligence. The reality is that this will be a moving target that both company and community will eventually figure out. As a resource, our team has much experience across multiple state borders managing this challenge as it continues to evolve.
If you have any questions regarding potential impacts to existing or future agreements please call us at 513.639.3971 or email kmkconsulting@kmklaw.com.
