Labor shortages and the desires of employees for a more balanced life are opening the door, now more than ever, for fully remote work options. This can potentially lead to a team of multi-state workers.

When working with remote or multi-state workers, government contractors may need to segment cost pool allocations differently to maintain equitability and avoid overbilling.

There is more to this change than new or separate cost pool allocations. Employing fully remote workers can affect payroll taxes and state licensing, budgeting and your culture.

Even with hybrid office arrangements in which workers are in the office part of the week, you will experience changes in some of these areas. If this is your situation, take a proactive approach to manage your costs, culture and audit risk.

Payroll recordkeeping

When an employee lives in or plans to relocate to another state, find out if you need to register in that state for payroll taxes or employer licensing. Create a tracking method to make sure you have the accounts and registration needed for newly hired and existing employees in other states.

If your employee lives just across the state border and still performs most or all work within your home state, your tracking may look a little different than for an employee who lives and works two states away. Check the requirements for each state or work with your trusted advisor in this area to identify each locality’s requirements.

Cost pool allocations

Fully remote employees can affect cost pools for government contracts. For one thing, you don’t incur the facilities, phone or utilities costs in the same way. You may still provide things like laptops and mobile phones, but costs can be much less overall. This can be somewhat like the situation you may already have where employees work on the government or contractor site. In a hybrid arrangement, however, costs could be higher because you are paying for remote equipment and supplies as well as your facilities costs.

Your considerations include forward-pricing budgets and equitable allocation. Tracking expenses for a fully remote portion of your workforce can help you develop more accurate forward-pricing budgets. This process can also bring up potential considerations of leasing needs and contract planning scenarios to calculate the best path forward. Remember, the guiding line with differentiating your facilities pool (or creating a segmentation in them) will be when it is no longer fair and equitable for the costs to be collected and allocated among the contracts.

If you anticipate employing or contracting a significant scale of remote employees, run some scenarios and do a cost projection to determine the point when cost allocation among your contracts could become inequitable.

Communication and culture

Although this consideration is not a cost element, remote employee communication and culture can affect contract performance and employee retention. Be proactive in this area to keep everyone on the same page, enjoying their work.

• Find out how your remote employees like to communicate (e.g., video, phone, text), or establish a policy for this communication.
• Schedule informal check-ins in addition to your regular contract meetings.
• Make opportunities for your remote employees to speak up during your team meetings.
• Keep employees informed about virtual events or team celebrations.
• Create an internal company newsletter or message board forum to communicate.
• Encourage employees to participate on committees and follow corporate social media.

Be intentional with communications because they won’t happen as organically as they do when teams are 100% in the office.

The great upside of the shift to remote work is that if employees have a significant life change that will take them out of state, remote work can help retain them. It can also broaden your hiring pool if you have been able to successfully navigate remote work.

Take this conversation seriously. You can retain great employees by providing a process for this conversation — what is possible and what is fair — for the company and the employee. It may not work in all circumstances but with it being a known potential, it allows the conversation to happen.

Michelle Jenkins, CPA, is a Partner and Department Head for the Solutions Services Department at Anglin Reichmann Armstrong and she has a special focus on women-owned and small government contractors in the areas of contractor technology solutions, accounting and growth guidance.

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