How Can HR Overcome Hybrid Team Payroll Challenges

Payroll of a hybrid team can be time-consuming and prone to errors

Remote work was the buzzword of 2020 - pandemic lockdowns, quarantines, insecurity, and health scares brought down by the infamous last year made a long-lasting impact on the business world. But as the world slowly goes back to normal, a new way of working has everybody interested. The future of work might be in the hybrid workplace.

Hybrid teams are pretty specific - they can work from several locations. Some team members work exclusively from the company's office space, while others work remotely - from home or anywhere they prefer. Also, all team members can change, even daily, the location they prefer - sometimes choosing the office and sometimes deciding to stay at home. Any combination the team chooses is feasible.

At the same time, a hybrid team can include both fully employed individuals and independent contractors, or any other way of working. These teams are focused on flexibility and personalization - allowing anyone to choose the method of working that suits them best while ensuring operational efficiency and target completion.

It should come as no surprise that this mode of work is becoming increasingly popular. The division amongst team members allows everyone to thrive in the environment that suits them best, but it also allows the work to continue uninterrupted despite the external circumstances.

It's important to mention a benefit that no employer should neglect - hybrid teams are proven to have much higher employee engagement.

One Gallup survey concluded that those who spend a part of their week in the office while spending the remainder at home are more engaged. This will be even more notable in the future since most of the workforce values flexibility and expects it from their employers, according to the  2021 Work Study Index that surveyed 30,000 people.

An entirely hybrid workforce might be a thing of the future, sure. Still, it is crucial for HR and payroll practices to develop first to make it a sustainable reality. Various hybrid work scenarios require different procedures, methodologies, and a lot of customized solutions. Where there is no scalability, there can be no growth, at least not a very memorable one.

Issues such as tax reporting, compliance, and contracting are not new and unfamiliar to seasoned HR professionals. However, there is an added layer of complexity that stems from the nature of hybrid teams.
 
Managing hybrid team payroll can be a very demanding task for employers. It is meticulous, challenging, and delicate administrative work, as it entails many different contract types, the always present misclassification issues, various tax laws, and all of that in various jurisdictions. In this article, you can read all about the most important aspects of a hybrid team payroll strategy to meet your employees' needs while still operating within the law.

When you are dealing with both full-time employees and individual contributors located in different states under several jurisdictions, ensuring compliance becomes the most challenging task for your HR team.

Unlike traditional teams, sharing the same on-site workplace, conditions, and contracts, members of a hybrid team significantly increase operational complexity since all of them require a different, often unique approach, paperwork, and compliance. In addition, the hybrid team's payroll needs to account for individual differences between each contract and each type of work relationship (full-time employee or independent 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 prepare for hiring in different locations in advance and strategically.

So, where to begin? The most practical first step will be to create a policy to clearly state the type of work and scenarios you want to hire. Perhaps you could start small and initially focus only on a particular geographic area, time zone, certain states, or maybe limit the number of workdays someone can spend outside of the office.  

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. It would also be beneficial to partner up with local legal counsel to get credible information that will let you proceed without costly errors.

From a psychological stance, all team members should feel equally valued. But if they are a part of a hybrid team, their contracts should be as different as possible. This is necessary for you to be able to obey all laws and adequately file all taxes. Each employee will pose a challenge - type of contract, working method, location, and compliance. And on top of that, you will have to be extra careful when filing taxes, as misclassification can deny the employee significant benefits, from healthcare to overtime pay.

Doing this manually would be not only inefficient but, quite frankly, cruel towards your payroll employees. It would also put significant strain on hiring efforts, increase the possibility of human error, and complicate the entire onboarding process of a new hire.  

The complexity of these types of hires shouldn't be underestimated. 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 regarded as a full-time employee under the FLSA. Therefore, the more comprehensive your hiring efforts go the more critical it is to align with federal, state, and tax laws.

It would be impossible to achieve all of this without a systemic approach, long-term planning, and inclusion of all relevant stakeholders. For example, coming up with a list of applicable benchmarks before any new hire can go a long way. You should know what you can offer and what your potential new employees can expect.

While a hybrid workforce ensures unmatched flexibility in recruiting top talent, it isn't advisable to head first without a proper support system that can help you automate your contracting and standardize a good portion of employee classification.

The most prominent 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 the same commitment, level of engagement, team, and company loyalty. While this challenge needs tackling from a psychological safety and team cohesion perspective, a good part is reflected in the benefits the employees receive.

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

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

However, the second axis is closer to the core of hybrid teams while simultaneously leaving more room for resentment to build up if not addressed upfront. For example, do you provide additional perks to employees coming to the office, such as on-site meditation classes, communication workshops, and equipment? In contrast, do other remote employees get this? The goal is to ensure fairness for all, in line with regulations and while ensuring a sense of cohesion.

The most efficient way to address these issues is to establish a company-wide policy that will provide equity to employees, whether working on-site or remote. Also, 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.

Recruiting in the future will be that much simpler, more efficient, and overall more successful once you've established a satisfying policy for all hybrid team members.