Ep 5 | Navigating the Remote Workplace with Marlene Zobayan

As the world gets used to remote working, many organizations are not prepared. Issues from responsibility for home offices to data security are still being ironed out. An even greyer area is issues arising around where remote workers are taxed or how equity grants should be most effectively handled.  

These are tricky situations and complicated questions, particularly around tax and regulation. To help us explore this relatively new and evolving topic is tax and equity expert Marlene Zobayan. 

Described as ”a walking encyclopedia for all local and international tax-related topics”,  Marlene is a Partner at Rutlen Associates Consulting Firm. She has worked with Deloitte and PwC and is on the CEPI advisory board. 

She is recognized as a highly respected professional in the equity compensation world and was awarded an Individual Achievement Award from the National Association for Stock Plan Professionals in 2009.

What did we discuss?

• New statistics showing long term effects of the pandemic on remote working 
• What you should consider in future remote work policies
• What you need before you even being forming a policy
• How fast you should roll out a work policy and who do you start with
• How prepared are the tax authorities right now
• The effect on employees, or even whole organizations, who move from high-tax to low-tax states or countries
• The one thing you must do now if you haven’t already

Ep 5: Navigating the Remote Workplace with Marlene Zobayan

Show Transcription:

0:00:00.0 Chris Dohrmann: Hello and welcome to Own Up, the podcast all about equity compensation and employee ownership, brought to you by Global Shares. I’m your host, Chris Dohrmann, and I’m joined as ever by my friend John Bagdonas. Hi John.

0:00:10.9 John Bagdonas: Hi Chris.

0:00:12.9 CD: Today we’re gonna be talking about the ever evolving nature of work in 2022. As we all know, the way we worked two years ago is a very different way of working from the way we work today. Long gone are the days of the traditional office workplace along with the commute to and from. And who would have thought that change would have happened as quickly as it did. The emergence of remote working has been great for a lot of people, as it’s wrought a greater sense of work-life balance. However, it also has created some tricky situations and posed some complicated questions, particularly around tax and regulation.

0:00:48.6 JB: So joining us today as we explore this relatively new and evolving topic is tax and equity expert Marlene Zobayan. Often described as a walking encyclopedia of all local international tax-related topics, Marlene Zobayan is a partner at Brooklyn Associates Consulting firm. She’s worked with Deloitte and PWC and is on the Certified Equity Professional Institute Advisory board. She’s recognized as a highly respected professional in the equity compensation world, and was honored with an Individual Achievement Award from the National Association of Stock Plan Professionals in 2009. But enough from me, let’s hear from the expert herself. Hi Marlene, how are you? And thanks so much for joining Chris and I today.

0:01:35.2 Marlene Zobayan: Hi John, hi Chris, thank you so much to you and Global Shares for having me on your podcast today.

0:01:44.2 CD: Marlene, it’s our pleasure, so thank you very much. I just wanted to jump right in, and I think we’re gonna talk about a number of different changes, but particularly some that have had their seeds in events that may have predated the pandemic, like the gig economy and the great resignation are changes that are happening to the workforce, but some of them have been very much accelerated by either technology or the pandemic, and one of those is mobility and how we’re treating how we work, whether or not we’re working from home, whether we’re working from the office or we’re working from a location of our own choosing. Have you seen that effect and have you seen people who have been challenged by meeting that new way we work?

0:02:31.0 MZ: Absolutely, Chris. And I think your comments are spot on. This isn’t a new thing, it is a trend that has deeply accelerated over the… Because of the pandemic. Like several trends that have accelerated because of the pandemic, I think the most talked about is online shopping. But it’s amazing to me how much the remote work trend has accelerated. I will tell you that one of the biggest mistakes I’ve made of my career, at least in terms of predicting trends, was in March 2020, when I thought, “Well, I’m gonna have a quiet a few months here because we’ve all been told to shelter in place and everyone’s going to sit still and do just that,” and then within a month or so, I was getting many calls from a lot of my clients saying, “Well, we’ve now just had all our Singapore population move out of Singapore and move to all these different countries. What do we do?” Or, “We’ve had our CFO move out of California and go to Colorado. What do we do?” So it definitely was something that I did not see coming, and I think a lot of employers didn’t see coming, but now in hindsight, it makes a lot of sense.

0:03:50.9 MZ: You’re right, it was an increasing trend. There was an increasing trend of remote working, there’s a survey by Flex Jobs and The Global Workforce Analytics that had already recorded 159% increase in remote working in the 12 years between 2005 to 2017. And there was already a plethora of companies that had sprung up pre-pandemic to help remote workers do their jobs remotely, including one that I always think would be great if only I was in this situation to take advantage of it, that basically helped employees move from country to country, from different destinations and provided them with living accommodations and good WiFi, so that they could do their work remotely while traveling the world. And those things were already in place, like I said, pre-pandemic. Now the trend has definitely accelerated. I don’t think we’ve seen the end of it yet, because a lot of places still aren’t fully open and a lot of offices, at least for my clients, as far as I know, are not fully open yet.

0:05:01.6 MZ: But Global Workforce Analytics has predicted that 25% to 30% of the US workforce will work remotely at least once a week after the pandemic is over. And that figure is somewhat supported by a study I read this week in The Economist about a collaboration between Stanford University and the Institute of Technology in Mexico, and researchers were doing monthly surveys, which among other things, ask participants about their remote work plans. So a year ago, the prediction was that post-pandemic 20% of work hours would be done remotely, but in last month survey, so that would be December 2021, that number had increased to 28%, and the authors had concluded that now that individuals are more accustomed to working remotely, they are more familiar with the technology, maybe they now have the equipment that they need to work effectively remotely, that they’re feeling more comfortable with the prospects of long-term remote work. And so that it wouldn’t be surprising to me that that number would may even go up from the 28% that they’ve predicted.

0:06:15.4 CD: Yeah, Marlene, you always bring the gold. And the fact that you have all of these statistics and references to real life situations as well as from academics as well as from your clients is very, very important and it’s great to hear for our audience and for us. And what I wanted to just say is part of that sounds like this is gonna be a continuing trend, and as you and I have discussed before, it always comes down to data. Have your clients really thought about collecting this data from what I guess is now a home state or a country, a work state or country, and potentially a transition or a temporary work state or country? And the reason I say that is because several highly visible CEOs have already announced you can work from anywhere for the foreseeable future. Number one, did they really mean that? And number two, are there organizations ready to track that?

0:07:15.4 MZ: Yeah, I’ve had a few clients and even friends who CEOs have made promises like that, and then legal and finance and every HR have to jump in and sort of claw that back a little bit, unfortunately. And I do wanna talk later about all the reasons why companies should be careful where their employees are working from, but you’re absolutely right Chris, and, you know, as someone who’s been implementing mobility policies, not just for remote work, but also for transfers and Travelers for some time, there’s a common misconception that the tax issues are the most difficult part of this process, and really it’s the data collection that’s really problematic and ugly, and companies do really need to think about how they collect the data, maintain the data. And when you’re talking about equity compensation, where you might have a taxing point that several years out in the future, but the mobility data has an impact on how you apply those taxes, you’re gonna have to maintain that data for several years and use it several years out, so data is definitely a big issue.

0:08:28.5 JB: So Marlene, I just wanted to sort of add to that, or ask sort of a related question. I know we’re talking and one of the things that Chris asked about CEOs making or effecting policy or trying to come up with policy decisions, and it almost seems like, because we all know as the point you made and Chris did about the data, that it’s almost like the cart before the horse or the horse before the cart in that so much of what can be done from a data standpoint will ultimately drive what the right policies are, I’m just curious from your perspective how that is sort of beginning to play out, at least with your clients and how you see that in general in terms of the tug between the two, that wanting to come out to have clear policies for employees, so they can make personal decisions based on what’s best for their company and what the existing policies are, but that limiting overarching or limiting factor of the data and how that is going to be managed, I’m just very curious in terms of how that’s begin and assorted out from your perspective.

0:09:31.4 MZ: So John, I wanted to add something to that, it’s not only the data, it’s often systems that limit what companies can do as well. For example, there might be a company that wants to comply, but their payroll system cannot cope with more than taxing an individual within more than one state, and then you’ve got to get your systems enhanced and upgraded before you can even start to comply. So I think you’re right, the data does have an impact, but your systems or a company’s systems have a huge impact as well. And sometimes you’ve got to get your ducks in a row before you can implement a policy. I would say for companies, ’cause I know almost every company is probably going through some aspect of this right now, unless you’re in one of those industries where you have to have people on site, you can at least start with the big exposure areas, see what you can do manually for those big ticket item. When a CFO moves to Colorado, that’s a much bigger deal than if your second year engineer moves to Missouri to live with his parents for a while. So even if you don’t have the systems and you think the data is going to be problematic to collect and make sense of, companies need to start with their big ticket items and work on their systems and their data collection processes to be able to widen that compliance net as time goes on.

0:11:07.7 CD: You raise an excellent point, and I think that’s what people need to hear, that you don’t have to have analysis paralysis, they can start working on the ones that are likely to be the most highly compensated, because that’s where the tax authorities will probably be focused. But I should ask, have the tax authorities or what are, I guess, traditionally called high tax states, and you live in California, I live in New York, John lives in New Jersey, have they already established their approach to temporary work sites and remote work sites?

0:11:46.3 MZ: Yes, they have. Well, let me start by saying that the whole tax aspect of remote working is not that new, generally, you would have a situation where somebody is resident in a state, or it could be a country, and they might work in a place where they’re non-resident, and the rules around those, at least the tax rules around those have been in place for a while now. A lot of them have been enhanced and refined over the pandemic, but the principles were already existing prior to the pandemic. So California and New York have been on top of this. New York, in fact, issued some FAQs that talked about people who are employed in New York and working remotely. So for some of you who work in New York, Chris, you know this, New York has this Convenience of the Employer rule that says, “If your employment is based in New York, then you are deemed to be working in New York unless your employer tells you to work somewhere else.”

0:12:51.9 MZ: And in their FAQs that were published as part of the pandemic, they basically had an FAQ that says, “My primary office is in New York state, but I’m telecommuting for out-of-state, do I still owe New York taxes on this income?” And basically the answer was, “Yes, unless you’re working from one of your employees or the base of operations.” So basically what New York has said is, if you were a New York-based employee that happened to reside elsewhere or you’ve moved elsewhere, but you haven’t really changed your employment location, just the fact that you’re working elsewhere, it doesn’t mean you don’t owe New York taxes. California issued some FAQs that basically said if you’re a non-resident working in California, you will be expected to file a California tax return and declare your income. There were some COVID exceptions to this, those COVID exceptions have now expired, they were really at the height of the pandemic when literally nobody could get flights or go back home or, you know, people were stuck in their locations.

0:13:57.6 MZ: What California didn’t say, which I thought was interesting, is they didn’t say that its rules required people to remain California resident unless they are out of California for a permanent basis. Basically, if you are a California resident and you leave California for a temporary or transitory purpose, then you are still deemed to be a California resident. So all those San Franciscans who may have gone to stay with their parents or stay with family for a short period of time, will still be California resident unless they do something to break California residency, such as register to vote elsewhere, change your driver’s license. In fact we have found that a lot of states are now auditing personal tax returns that are now being filed as a part year resident or a non-resident return to putting the onus on the employee or the individual to prove that they did in fact change their residency.

0:15:01.3 CD: Okay, I think we’ve talked a lot about how taxation and regulation is gonna affect individuals, and for lack of paying attention to Bermuda or the Bahamas, I could have been working there for six months, seven months at a time, but the chance is missed and opportunities lost, but can we shift to employers? I think there have been some highly publicised employers that have changed locations during the pandemic, and it may be because of CEOs compensation, but it may be just for an overall corporate tax issue. So Tesla is one of them that moved from California to Texas. Are either employees or employers moving from high tax states to low tax states?

0:15:50.5 MZ: So that’s generally the impression that everybody has. I don’t know why exactly Tesla moved, but what I thought was really interesting is that the National Association of Realtors published a survey of USPS move data in the Fall of 2020, and they looked at where people had moved during the pandemic based on the forwarding addresses that they had filed with USPS, and it showed that the top state that most individuals left was in fact Texas, followed by New York, then Washington DC, then North Carolina, and California was fifth on that list. In fact, it was funny because New Jersey was the top state that most people moved to, so I could sort of see all this, [laughter] New Yorkers that moved out of New York and moved across the river to New Jersey. Having said that, there’s no doubt that people have moved out of California. I don’t know, I don’t know why that is. The same survey did say that over 90% of people moving, we’re moving within the same states.

0:17:08.1 MZ: They were basically moving from denser areas to a more suburban type environments. And it’s a fantastic survey, if you don’t mind me putting in the plug, anyone can do a search on something like, Bankrate, the coronavirus pandemic updated moving trends, and they’ll see references to the survey since then. I would love to see an update on that survey, it is now over a year old, I haven’t been able to find one. So there might be other reasons why companies might want to move their headquarters. For example, I know California introduced a law that basically requires state directors to pay directive California tax on director fees regardless of whether they attend meetings in California or not, and it also introduced some board diversity requirements. I’m not saying that’s why Tesla moved, I really don’t know, they’re not my client, I don’t know why they moved. And there’s also labor workforce costs. When you have a non-remote type situation and you need people to come into an office or a building to do their work, obviously, if you’re based in California, that’s a much higher labor cost than it might be in other areas. So there’s definitely a lot to think about here, and I’m not sure what the right answer is her, Chris.

0:18:36.5 CD: You know, and Marlene, I just wanted to sort of add to that point about the labor costs, and that’s much about hiring in a different location, but I’ve heard of trends and examples, if you will, of corporations particularly… We’ll use California as an example. If someone was working in Silicon Valley and making a Silicon Valley salary, if you will, and then beginning to work remote and getting to the point where they will work remotely permanently because of how their job is, that there are employers, particularly in the tech sector that I’ve heard stories of saying that they’re going to adjust those salaries, whether, in short order or over time, to reflect the cost of living of where those people are doing that work. And obviously that has a potential tax consequence more from a downturn in income and potential salary, if you will, for wherever the state that they’re living in now, but just curious if you have seen that, and being out on the West Coast, you’re probably closer to some of the scuttlebutt, if you will, of that type of phenomenon, but just curious if you have any stories or insight you can share in that regard.

0:19:56.7 MZ: I haven’t followed the survey data on that. I know that Mark Zuckerberg of Facebook was the most quoted CEO to say if you move to a lower-cost state, your salary might not stay the same. But I think you’re right, I think a number of companies have been doing that. From what I gather, and this is anecdotal, I haven’t seen survey data, is if someone moves, they will adjust the salary the next salary cycle, and they will not adjust existing grants, but they will adjust the number of refresh grants that that individual gets. And it really reminds me of the late 1990s when I first came to the US and got involved in the equity compensation industry, and the dot coms as they were known then, were making the same stock option, same number of stock option grants around the world, and it really did ruin a lot of economies. I had one client that had a big manufacturing plant in the Dominican Republic, and they realised about a year before those grants vested, they had a five-year cliff that everybody was going to retire based on the amount of awards they had given them because they hadn’t appropriately sized those awards for the environment that they were living in. So I can see how it ruins economies and it can work against incentivising employers to stay, which is the whole point of long-term incentives. So it doesn’t surprise me at all that companies are doing that now.

0:21:25.1 JB: No, and I remember similar examples, ’cause the three of us all go back to the dot com days, but I can remember a similar example where a company did what seemed like not a very big grant, company-wide grant for their global employees and upon the vest of that award, they lost most of their Bangladesh employees because it was the same thing that it was such a windfall for them that they didn’t need to work anymore.

0:21:52.2 MZ: Exactly.

0:21:52.2 CD: So Marlene, I just wanna now, we’ve talked about a number of things and used examples that may have some of our audience thinking, retrospectively, “What do I have to do?” Is there something that we can talk about as far as a company reviewing their policy or their data requirements that can be proactive, where people can actually start to get in front of this trend?

0:22:16.1 MZ: Okay. Well, I feel like a broken record when I say that if you don’t have a policy, a remote work policy, get a remote work policy. And if you have one, then great, but you need to monitor and review it and evaluate it over time because we’re all new in this and we don’t know what we don’t know. It is really important, I think, to have a policy, and not just for tax purposes. I’ve been following a number of stories about the labor law aspects. In fact, earlier this year, and I know we’re only in the third week of January at this point, I read about a court in Germany recently ruling that a man can slip down the stairs in his own home to go down to his home office, could actually claim on his employer’s insurance for the injury that he had. And I heard, and this was pre-pandemic, a Rhode Island-based employee that had been working remotely for a number of years and had been terminated the employment in a dispute manner with his employer, was told by the Rhode Island courts that yes, he could sue them, he could sue his employer in Rhode Island, because even though they had no nexus there, the company wasn’t present in Rhode Island, they had allowed him to work there for a number of years, and therefore he was subject to Rhode Island labor law and not the labor law of where his true employment, where the employer was based.

0:23:55.6 MZ: So I think there’s a lot of aspects to this that companies aren’t necessarily thinking about. And I just mentioned labor law ’cause I think sometimes the… It’s more attention-grabbing when you have these court cases come out. Obviously tax remains to be a problem. I think the other one is IT security, is an issue. I’ve had clients who’ve had employees that wanted to go and work in Peru or Lebanon, and then you have to evaluate, “Well, are they going to get secure access to the internet, or is the company’s data gonna be compromised in some way?” And I’m not trying to imply that those countries wouldn’t have secure data, but the IT department in your own, and the employer needs to make that evaluation.

0:24:42.3 MZ: I do want to say, ’cause I alluded to it earlier, Chris, and I think it’s worth mentioning here, that if you have employees that are now working remotely from countries where they might have securities laws, foreign exchange laws, data privacy laws, maybe that you as an employer were not previously exposed to, well, suddenly you have an employee in those countries and even your equity grants are going to be subject to the laws of where the employee is and not where you want them to be. So I could go on and on about all the different considerations about what remote work policy is, but unless a company has one, it’s really just an open playing field and you don’t know as a company what you’re being exposed to. You need a policy, you need an approval process and some parameters around where people can work.

0:25:37.5 CD: Right, I think that’s a great point. And let me just recap because the three of us are fairly fluent in what we’re discussing, the topics, the implications, but I wanna make sure that everybody who’s listening does as well. So part of the things that you brought, Marlene, is number one, have a policy, and realise that mobile may not be the old traditional definition, it may be transitional as well. In addition, the policy should also include non-tax issues and regulatory issues, whether they be currency, whether they be data security, or whether they be labor laws. So those things all have to be encapsulated in a company’s mobile or work-from-home policies that are going along with it. I just wanted to raise one other issue to make sure that some of this is a little bit more practical. And taxation is probably the one that illustrates it the best. Is it worth establishing a policy a little at a time, if you stratify that policy? And what I’m saying is really start at the top of the house where the regulators or the auditors are gonna be looking and then try and work it down to the rest of the company.

0:26:50.7 MZ: Normally, I would say yes, and I think I’m still saying yes, but I would worry if the horse has already left the stable at that point, so you need to do what you can, but do it quickly, I guess is my response to that. [chuckle]

0:27:06.0 CD: Perfectly understood. But now we’ve been asking a lot of questions of you. Is there anything else that you wanted to bring in and make sure that people are aware of? So are there challenges that your clients bring to you, and you wish you had talked to them three months before they came to you?

0:27:23.2 MZ: Oh, I think the one that’s coming up a lot, and I think partly it’s to do with remote working, but partly it’s to do with another trend that was already happening, is companies that are “employing” this is a podcast, but I am doing the air fingers here, employing individuals through PEOs or EORs. So if listeners don’t know what that is, that is an organisation that is the legal employer in a particular country of your service providers, they’re no longer employees ’cause they are the employees of the PEO or the EOR, and typically they provide full-time services to the company. And I had a number of companies who’ve then gone ahead and make equity grants to those individuals, but they’re not your employees, and therefore they don’t fall under the regular taxation, the regular securities law in some situations, rules that you would expect, and therefore it’s causing a lot of problems. So I guess my summary of that, Chris, is to sort of get advice or think and review before you do anything.

0:28:40.0 CD: I just wanted to say thank you very much for your time, Marlene. As usual, this is always extremely valuable. And I’d love to stay in touch because I think the fact that we’ve had this discussion maybe less than two years ago, and I think things have changed dramatically in the workplace and in the regulatory space, that I think we should just keep up-to-date, and you’re an invaluable guest, so thank you very much.

0:29:05.2 MZ: Thank you for having me.

0:29:06.2 JB: Yes, thank you Marlene.

0:29:13.8 CD: So John, that was great, and as usual, I was able to learn something from that, particularly about the fact that many corporations don’t have a definitive or at least a rounded and updated employee workplace policy.

0:29:31.8 MZ: Yeah, and it’s similar to the point that I was making during the discussion with Marlene that the policy, it seems that it’s the most important part of this whole scheme of what’s gonna happen, and particularly from a regulatory standpoint, but you can’t really formulate a cogent policy until you know really what the rules are and what the risks and the benefits are, and where you start. I think you asked a great question during the session about, do you start at the C-suite or at the CEO level, create a policy and work down? That’s not necessarily a clear-cut because of how the definitions of employee and workplace and all these other things have changed and continue to iterate, and it’s gonna be very interesting in the next maybe year or two to see where we all end up and what the new workplace or steady state of the workplace is going forward, and then how all of these other policy and regulatory considerations fit in and interplay going forward.

0:30:34.5 CD: Exactly. That’s the major takeaway I took. When Marlene said that she’d be agreeable to following up on this after the pandemic and see if these trends have been manifested, whether they’ve expanded or whether or not they’ve been curtailed, I think it would be a very worthwhile portion of our time to revisit this in about a year’s time.

0:30:55.0 JB: And the other thing too that I’ve found as a great takeaway is that example that Marlene used about that employee in Germany. I’m having second thoughts about, I may be falling down my basement stairs later today and see how Global Shares feels about that. [chuckle]

0:31:13.6 CD: Thanks, John. And thanks for listening to our Own Up Podcast, which was produced by Dustpod.co for Global Shares. Make sure to click and follow in your podcast player to be notified right away when we release a new episode. And if you like what we’re doing, why not share with friends or leave a review? Until next time, thank you.