Payroll Best Practices for Remote Workers: What You Need to Know in 2025

In 2025, remote work firmly established itself as a permanent feature of the modern workforce. As businesses embrace hybrid and fully remote work models, payroll departments face new challenges in ensuring compliance, efficiency, and accuracy. Managing remote workers across various time zones, states, and even countries require careful planning and a deep understanding of the evolving payroll landscape.

Whether you’re a small business owner or managing payroll for a large organization, it’s crucial to adopt the right strategies to ensure your payroll system supports your remote workforce. Here’s everything you need to know about payroll best practices for remote workers in 2025.

1. Understand State and Local Tax Laws

One of the most significant challenges in managing payroll for remote workers is navigating the complex and varying tax laws across different jurisdictions. When employees work remotely in different states or cities, employers must withhold the appropriate state and local taxes based on the employee’s work location, not the company’s office location.

• State Income Tax: In the U.S., each state has different rules regarding income tax withholding. Some states, such as Florida and Texas, do not have a state income tax, while others like New York and California have higher income tax rates. It’s crucial to stay updated on each state’s rules for withholding tax for remote employees.
• Local Taxes: Some cities and counties levy local income taxes, adding another layer of complexity. For example, workers in cities like New York City or San Francisco may face city-specific taxes that need to be accounted for.

To remain compliant, make sure your payroll system or service can easily accommodate multi-state and local tax withholding, and consult with tax experts to stay on top of any new legislation.

2. Track Time Accurately, Especially for Hourly Workers

Accurate time tracking is essential for remote workers, particularly for those who are hourly. Remote work often means more flexibility in working hours, but that doesn’t mean it’s any less important to ensure hours are recorded accurately. Failure to do so could lead to wage disputes, compliance violations, or even legal repercussions.

• Use Time Tracking Tools: Invest in reliable time-tracking software that integrates seamlessly with your payroll system. This can prevent errors and simplify payroll processing. Tools like Toggl, Harvest, or Hubstaff can help you track the hours worked by remote employees, even across different time zones.
• Overtime Compliance: Be aware of overtime laws in each jurisdiction your remote workers reside in. For example, federal law mandates overtime pay for hourly workers after 40 hours in a workweek, but state-specific rules could vary. Ensure you’re factoring in overtime pay for remote workers based on where they are working and their local laws.

3. Address Wage and Hour Laws Across Time Zones

For companies with remote workers spread across multiple time zones, payroll can become tricky. While it might seem like a minor issue, accurately accounting for work hours in different time zones is crucial to avoid payroll mistakes.

• Payroll Cutoff Times: Decide on a standardized payroll cutoff time to ensure consistent processing. Some businesses choose to base payroll schedules on a central time zone, while others use the time zone of each employee’s location. This decision should be clearly communicated to employees to avoid confusion.
• Scheduling Considerations: When remote employees work in different time zones, it’s important to establish guidelines for scheduling meetings, deadlines, and work hours. This can help ensure that there’s no misunderstanding about when work is expected to be completed and prevent any delays in payroll due to miscommunication.

4. Ensure Proper Classification of Remote Workers

Remote workers are often employed as full-time or part-time staff, contractors, or freelancers. Each classification comes with its own set of tax obligations, benefits, and payroll requirements.

• Employees vs. Independent Contractors: The IRS has clear guidelines about how to classify workers as employees versus independent contractors. Employees must be provided with benefits (such as health insurance or paid leave), and payroll taxes must be withheld. Independent contractors, on the other hand, are responsible for their own taxes, and you don’t have to provide benefits.
• Cross-border Classification: For remote workers located in different countries, make sure to classify them correctly according to local employment laws. The distinction between employees and contractors is sometimes more nuanced in foreign jurisdictions, so having a legal expert review your contracts can prevent complications down the road.

5. Paying Remote Employees on Time and Accurately

One of the core tenets of payroll management is ensuring that employees are paid accurately and on time. Remote work can add complexity to this, but it doesn’t need to be a roadblock.

• Direct Deposit: Direct deposit is one of the most efficient ways to pay remote employees, regardless of location. It’s secure, convenient, and helps reduce errors. Ensure that your payroll system supports global direct deposit if you have international remote employees.
• Currency and Tax Withholding for International Workers: If you employ workers outside of your home country, payroll becomes more complex due to currency differences and international tax laws. You’ll need to understand how to handle currency conversion, exchange rates, and cross-border tax implications.
• Use a Payroll Service: If you have remote employees in various locations, a global payroll provider (like Gusto, Deel, or Papaya Global) can help ensure that payments are accurate, compliant, and timely. These services handle the heavy lifting, such as calculating taxes, converting currencies, and processing payments across borders.

6. Offer Flexible Benefits for Remote Employees

Remote workers value flexibility in their work environment, and that can extend to the benefits you offer. Some companies are offering remote-specific benefits to help meet the unique needs of their distributed teams.

• Home Office Stipends: Many employers offer stipends for remote employees to set up their home office or cover their internet and phone costs. This is a tax-deductible expense in some cases, but it must be properly accounted for in the payroll system.
• Health and Wellness Programs: Offering virtual fitness classes, mental health services, or health insurance plans that cater to remote employees can improve retention and employee satisfaction. Ensure these benefits are integrated with your payroll system so that deductions, contributions, and reimbursements are handled correctly.

7. Communication and Transparency Are Key

Clear communication is one of the most effective tools for managing remote employees, particularly when it comes to payroll. Since remote workers aren’t physically present in the office, it’s essential to maintain transparency and provide them with the information they need to feel secure about their pay.

• Provide Detailed Pay Statements: Always provide detailed pay stubs or digital statements that break down wages, deductions, taxes, and any other compensation information. This transparency helps employees understand their pay and reduces confusion.
• Regular Check-Ins: Hold regular meetings with your remote team to review any changes to payroll policies, tax laws, or company benefits. This can also be a time to address any payroll-related concerns that might arise.

Managing payroll for remote workers in 2025 requires thoughtful planning and a strong grasp of compliance regulations, tax laws, and effective payroll systems. With the right tools and processes in place, you can ensure that your remote workforce is paid on time, accurately, and in compliance with all relevant laws.

By staying proactive about tracking time, classifying workers correctly, and offering flexible benefits, you can create a smooth payroll experience for your remote team—ultimately contributing to better employee satisfaction and business success.

Avid Payroll

[email protected]

970-223-4913