Remote Employees: Pros, Cons, and Costs for Employers

Finding the right person is hard. Sometimes the best candidate you’ve interviewed lives four states away and has no plans to move. That’s when remote work starts to sound easy: send a laptop, set up a login, and get to work.

Remote work can be a great choice. It can also bring costs and responsibilities that are easy to miss. A remote employee is still an employee, with payroll taxes, wage rules, insurance, training, and management needs — and if that person works from another state, the paperwork can grow fast.

I get the flexible-schedule appeal personally. I was a remote employee before that was a widely known term. The summer after my first daughter was born, my dad, David, asked if I’d come work for him at the firm. That was almost fifteen years ago, and we haven’t looked back — though it hasn’t always been smooth. I’ve held a sleeping baby through a client call, changed a diaper on the corner of my desk between tax returns, and answered emails at 10 p.m. because that was the only quiet hour in the house. Ask me back then whether my schedule was “flexible,” and I’d have laughed — it was flexible the way water is flexible: it goes wherever there’s a gap. (Keep reading for pictures of some work days back then.)

That’s the honest version of flexible work, remote or otherwise. It’s not a laptop on a beach (although it was a time or two). Some weeks it’s you, apologizing to your own kid for being on a call — “It’s me, hi, I’m the problem, it’s me” — while also trying to close someone else’s books. Remote employees get a version of that same freedom, and a version of that same mess. The point of everything below is building a setup that captures the freedom without quietly dumping the mess on the business.

First, a remote employee is still an employee

Working from home doesn’t change a person’s worker status. A full-time or part-time remote employee is generally paid through payroll and receives a Form W-2 — the employer still handles tax withholding, the employer share of payroll taxes, unemployment taxes, and other employee rules.

Remote work also isn’t a shortcut for calling someone an independent contractor. The IRS’s common law test looks at the full working relationship — behavioral control, financial control, and the type of relationship between the parties. Where someone sits while working doesn’t decide whether they get a W-2 or a 1099.

The pros of hiring remote employees

1. A larger hiring pool. You’re not limited to people who live near your office, which helps when a role needs a skill that’s hard to find locally.
2. More flexibility. Remote work can appeal to employees who need a shorter commute, a quieter workday, or more control over their schedule.
3. Lower office costs. You may need less office space, fewer desks, and fewer in-office supplies — this matters most if remote hiring lets you avoid adding or expanding office space.
4. More focused work. Some roles are easier to do away from phones, walk-ins, and office interruptions, especially when the job has clear tasks and clear deadlines.
5. Better business continuity. Weather, road problems, or a building issue may not stop work if employees can safely work from somewhere else. Snow day? Not typical when you work from home.

The cons of hiring remote employees

• Training takes more planning. A new employee can’t just turn to the person at the next desk, so written steps, screen-sharing, and scheduled check-ins matter more.
• Communication gaps can grow. A quick office question can turn into a long email thread, and people tend to guess differently when a process isn’t written down.
• Performance problems may hide longer. Remote work should be measured by completed work, accuracy, deadlines, and service — a green online status isn’t a performance review.
• Some employees feel disconnected. People who do well working alone are fine; others lose energy without regular contact with the team. It’s the perfect environment for an introvert like me, but would not be for an extrovert like my husband.
• Data security needs more attention. A home network, personal device, shared workspace, or public Wi-Fi can expose business and client information, so secure devices, multi-factor authentication, access limits, and training should be part of the cost.
• State rules can multiply. An employee working in another state may bring new payroll, insurance, registration, and labor law requirements.

What does a remote employee really cost?

A remote employee may cost less than an office employee, but not always. The salary or hourly pay is only the starting point — remote work often changes where the money goes rather than removing the cost.

1. Wages and normal employer costs

The employer still pays wages, the employer share of Social Security and Medicare taxes, federal and state unemployment taxes, workers’ compensation, payroll processing costs, and any benefits offered. The employer share of Social Security and Medicare is generally 7.65% of covered wages, subject to the annual Social Security wage limit.

2. Equipment and setup

A basic setup may include a laptop, monitor, docking station, keyboard, headset, webcam, printer, or secure storage. Decide up front who owns the equipment, who handles repairs, and how it gets returned when employment ends.

3. Software and security

Remote work may require cloud software, video meetings, password management, multi-factor authentication, backup tools, device management, antivirus protection, or a secure remote connection. Some tools are priced per user, so the monthly cost grows with every hire.

4. Internet, phone, and workspace support

Some employers pay a flat phone or internet stipend; others reimburse actual business costs. State law may require certain expense reimbursements, and a required business expense shouldn’t push a nonexempt employee’s pay below the minimum wage. Put the rule in writing and decide how receipts or other proof will be handled.

5. Payroll and compliance setup

If the employee works in another state, the business may need new payroll tax accounts, unemployment registration, workers’ compensation coverage, state forms, labor notices, and help reviewing business registration or tax filing rules. The setup cost may be small, or it may be the most expensive part of the hire.

6. Travel and team time

Will the employee come to the office for training, planning, or busy seasons? If so, budget for mileage, flights, hotels, meals, and paid travel time when required. A remote job can still have in-person costs.

A simple first-year cost example

Assume a business hires a remote bookkeeper at a $50,000 salary. A basic planning estimate might look like this:

That subtotal doesn’t yet include state unemployment, workers’ compensation, payroll fees, paid leave, health or retirement benefits, travel, or replacement equipment — all of which vary by business, employee, and state. The equipment may last several years, but the cash still leaves the bank in year one.

The out-of-state issue owners should not skip

Remote work is simplest when the employee lives and works in the same state as the business. Once state lines are involved, don’t assume your current payroll setup covers everything. Depending on the states involved, you may need to review:

• State and local income tax withholding. The employee’s work location often matters, but state rules and reciprocity agreements vary.
• State unemployment insurance. The wages may need to be reported to a different state unemployment agency.
• Workers’ compensation coverage. Your current policy may need another state added, or may not cover the employee’s location at all.
• State wage and leave laws. Minimum wage, overtime, paid leave, pay statements, final pay, and other rules can differ by state or even by city.
• Business registration and tax filing. Having an employee in a state can trigger registration, annual report, income tax, franchise tax, or other filing questions.
• Required notices. Remote employees may need access to federal, state, and local workplace notices in a form that meets the rules that apply to them.

This is why an employee shouldn’t be allowed to move to another state, or work there for a long stretch, without telling the business first. A simple address change can become a payroll and tax change for the employer.

Do remote employees need to track their time?

Nonexempt remote employees should record all hours worked. The same minimum wage and overtime rules under the Fair Labor Standards Act (FLSA) that apply in the office also apply at home. If the employer knows, or has reason to believe, an employee is working, that time may need to be paid even if the work wasn’t approved first.

A written schedule helps, but it isn’t enough by itself. Employers should explain how to record time, when overtime needs approval, and what to do if work happens outside the normal schedule. The policy should address the unapproved work — but the paycheck still has to include any time that must legally be paid.

What should a remote work policy include?

The policy doesn’t need to be fifty pages long. It does need to answer the questions that cause problems later.

1. Name the approved work location. Require notice and approval before the employee changes states or regularly works somewhere else.
2. Set the schedule. List normal hours, core availability, breaks, and how absences get reported.
3. Explain timekeeping. Tell nonexempt employees how to record all work time and request overtime.
4. List the equipment. State what the business provides, who may use it, how it should be protected, and how it gets returned.
5. Set reimbursement rules. Cover internet, phone, supplies, travel, and other approved expenses.
6. Protect business information. Address passwords, multi-factor authentication, approved devices, document storage, printing, and public Wi-Fi.
7. Set communication expectations. Explain which tools to use, when meetings happen, and how quickly messages should get answered during work hours.
8. Measure the work. Use clear deadlines, quality standards, and results — not online status — as the main measure of performance.

When remote work is a good fit

Remote work is often a good fit when the job can be done securely online, the work has clear results, the employee communicates well, and the business has written processes. It also helps when the manager is willing to train on purpose and check in on a regular schedule.

It may be a poor fit when the role depends on walk-in customers, paper records, close daily handoffs, special equipment, or hands-on training. It can also struggle when the owner hasn’t decided what good work looks like. Remote work tends to expose unclear systems very quickly.

The bottom line

Remote employees are not automatically cheaper, easier, or harder than office employees. They are a different way to build a team. The right setup can give a small business access to better candidates and more flexibility. A rushed setup can create payroll notices, security problems, and frustration on both sides.

Before making the offer, price the full role, confirm the employee’s work location, review the state requirements, and put the work rules in writing. Those steps are much easier before the first paycheck than after a notice arrives.

How Compton & Company can help

Compton & Company helps small businesses with payroll, accounting, and the questions that come with growing a team. If you’re considering a remote employee, especially one who will work from another state, talk with us before the first payroll. We can help identify the payroll setup that may be needed and point out questions that should be reviewed with your attorney, insurance agent, or other advisor.

Helping you navigate today and plan for tomorrow.

Frequently Asked Questions

Is a remote employee still a W-2 employee?

Yes — status depends on the actual working relationship, not on the employee’s zip code.

Do I withhold taxes for my business state or the employee’s state?

It depends on where the employee actually works and the rules of the states involved. The work location usually controls, but some states have reciprocity agreements that change the answer. Review this before the first payroll, not after.

Are remote employees cheaper than office employees?

Sometimes, but rarely by as much as owners expect. You may save on office space and furniture, but wages, payroll taxes, insurance, software, equipment, and management still cost real money — see the first-year example above.

Do I have to pay for a remote employee’s internet or equipment?

It depends on the expense, the employee’s pay, and the state where they work. A written reimbursement policy helps, but have it reviewed against that state’s rules before you rely on it.

Can an hourly employee work a flexible remote schedule?

Yes, as long as the business is comfortable with the schedule and every hour worked gets recorded and paid correctly.

This article is for general information only. Payroll, tax, insurance, and employment law rules vary by state and situation.