Payroll Challenges

Hybrid Team Payroll Challenges and How to Overcome Them

In this guide, we look at the foundations of a good hybrid teams payroll strategy, so you can hire and retain top talent and tick off all compliance points.

Anja Simic
Written by Anja Simic
September 28, 2021
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Hybrid teams are teams that work between multiple locations— some team members work from corporate offices for one part of the workweek, working other days from remote locations or home. At the same time, one hybrid team can include employees who work from the office and employees who work from distant remote locations, who can also be either fully employed or hired as independent contractors. 

This mode of work is becoming increasingly popular. Especially during the 2020 pandemic, hybrid teams made it possible to share the workload between team members and ensure operational efficiency, when the physical offices were not an option.

In addition to ensuring business continuity, hybrid teams also lead to higher employee engagement. One Gallup survey found that people tend to be more engaged when they work only part of their workweek from the office. And according to the 2021 Work Study Index that surveyed 30,000 people, 70% of employees want flexible working options to continue.

But to make hybrid work a sustainable reality, employers need to establish HR and payroll practices that can scale to support various hybrid work scenarios. 

These challenges relate to essential payroll and people operations questions— workplace compliance, tax reporting, contracting, and engagement, but bring an added layer of complexity that stems from the nature of hybrid teams. 

As payroll teams need to manage different types of contracts, for different classification types, and varying jurisdictions, hybrid team payroll is time-consuming and prone to errors. So, here are the key aspects to include in your hybrid team payroll strategy and stay in line with regulations, while ensuring flexibility for your staff.

Solving hybrid workforce compliance

Hybrid teams often include employees and individual contributors who work from different states or jurisdictions. This requires particular care from the point of compliance. 

Whereas in a traditional, on-site workplace, the payroll team would sign the same contract with each employee, thus lowering operational complexity, with hybrid teams this aspect is significantly more complex. 

The hybrid team payroll needs to account for individual differences between each contract and each type of work (full-time or contractor), which adds to the workload of payroll teams and creates space for non-compliance. And often, payroll teams need to address these differences manually, which only exacerbates the risk of hiring staff in a manner that doesn’t meet the applicable labor laws.

A more prudent way to address the compliance of hybrid team payroll is to strategically prepare for hiring in different locations, in advance.

The first step would be to create a hiring policy around hybrid teams. Here, determine the type of work and scenarios that you want to hire for. For example, you may want to initially focus only on a particular time zone, a limited number of states, or the allowed amount of days to work remotely from one of your offices.  

Then, once you identify the scope of your hybrid workforce hiring, you can proceed to research local specificities for each of the jurisdictions to understand the rights of each employee or contractor, your obligations as an employer, and any exemptions to the rules. 

Before you start hiring, strike strategic partnerships with local legal counsel to get credible information that will let you proceed without costly errors.

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Contracting challenges: taxes & misclassification

Properly classifying your hybrid workforce is another big obstacle for payroll teams. It is important to make sure that while all team members feel equally valued from a psychological stance, there is a compliant foundation of your hybrid hiring. 

This means you will need to draw different contracts, each for a particular location of your employee or a local contractor. But you will also need to take extra care when filing for taxes and adequately classifying your workforce, as misclassification can deny the employee significant benefits, from healthcare to overtime pay. 

If done manually, this type of contracting can be costly and put a significant strain on hiring efforts, diminishing the efficiency of the people team, but also negatively affecting the hiring from the future employees’ end.

For instance, the mere act of working offsite or working flexible hours doesn’t make an employee an independent contractor. Likewise, if a person is considered an independent contractor under a state or tax law, they can still be considered a full-time employee under the FLSA. The wider your hiring efforts go, the more important it is to ensure alignment with federal, state, and tax laws.

Again, this requires a systemic approach and forethought that should be aligned with your long-term hiring strategy. Make sure you prepare applicable benchmarks to assess (in)dependence of a member of staff, and then expand this list with, and preferably before, making a new hire.

While a hybrid workforce ensures unmatched flexibility in recruiting top talent, head diving into these endeavors is not advised without a proper support system that can help you automate your contracting and standardize a good portion of employee classification.

Ensuring payroll equity within hybrid teams

The biggest peculiarity of payroll for hybrid teams lies in balancing the benefits. You want to ensure that all team members, whether coming to the office each day or working from another time zone, feel like part of the same team. While this challenge needs tackling from a psychological safety and team cohesion perspective, a good part of it is reflected in the benefits employees receive.

There are two axes to bear in mind here: type of contract (employees vs contractors) and mode of work (full-time, working from the office vs working remotely from a different jurisdiction).

So under the first axes, the two broad groups you need to cater to — employees and independent contractors differ in their rights under the employment contract. Employees are entitled to particular benefits, while independent contractors in most scenarios receive a lump sum payment for the work they have produced.

But the second axis is closer to the core of hybrid teams and also leaves more room for resentment to build up if not addressed upfront. Do you provide additional perks to employees coming to the office, such as on-site yoga classes or language sessions, and equipment, while other remote employees don’t get this? This is only a single instance where hybrid teams' payroll can get tricky— the goal is to ensure fairness for all, in line with regulations, but also while ensuring a sense of cohesion. 

The safest way to address these issues is to establish a company-wide policy that will provide equity to employees, whether working on-site or remote; and it’s prudent to source responses from members of hybrid teams as well, that way your payroll policy for hybrid teams will be scalable as new team members join.

Once you establish a transparent but flexible hybrid teams policy, it will be a lot more efficient to seek, recruit and retain top talent.

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