CFOs Grapple with the Intricacies and Financial Implications of Remote Work  ~ Latest from Oracle NetSuite

CFO Leadership Council is proud to align with Oracle NetSuite as a national partner. As we enter month nine of a still predominantly remote workforce, they share their latest findings for how CFOs are coping.

 Last spring, as COVID-19 forced office shutdowns in regions around the globe, employees that were fortunate enough to continue to work remotely, suddenly found themselves struggling to adjust to Zoom meetings, online collaboration and isolation, even as many were helping their children with remote learning. Meanwhile, CFOs and finance departments were confronting their own challenges, trying to manage a remote close and worrying about financial controls.

Since then, while those early proclamations that the office has been changed forever have been replaced with more tempered realizations of the importance of personal interactions, there’s little doubt there will be long-lasting changes giving employees more freedom and flexibility about where to do their work. And those challenges for finance are not going away.

How to equip remote staff, adapt traditional processes that have historically been in person and abide by the myriad tax implications that could emerge with a workforce spread across the U.S., and perhaps beyond, are, for better or worse, part of the CFO’s agenda.

Managing the Remote Close 

One of the early challenges to rear its head was just how to deal with the period-end close. Despite advances in technology, the month-end close still remains a traditional, manual processes with a mix of spreadsheets, on-site systems and in-person collaboration. When COVID-19 first struck, it quickly presented a challenge. So much so that some finance professionals were sneaking back into the office to get the job accomplished.

In fact, in a poll during a Deloitte webinar in April, more than 40% of the audience said that no professionals involved in their financial close processes worked remotely prior to the current crisis. An additional 31% said that less than one-quarter of their teams were offsite during a typical close.

Technology proved to be an initial hurdle. Many companies quickly realized their systems weren’t equipped to handle an entire company accessing the network remotely. Yet, with sensitive financial data at stake, a connection secured through a VPN is just as important as ever. Unable to “drop by” a coworker’s desk for a quick answer, many finance professionals saw the close process drag out as they adapted to online tools and video conferences. In a NetSuite webinar in April, 43% of attendees said they were able to close remotely, but that their companies’ cultures were holding back further advances. That’s not stopping them from pushing, however, as nearly two-thirds (65%) of the attendees said they were planning to perfect remote closings once COVID-19 passes.

Finance teams running cloud-based accounting systems were able to transition to the remote close far more easily. Some software had existing programs or enhancements already in the works that made remote work easier for finance.

Still, many finance professionals are not equipped to work from home continuously. CFOs considering a remote workforce need to work with their IT departments to ensure staff have sufficient bandwidth, the right equipment and the flexibility to adjust to at-home challenges like children or isolation from co-workers that come with it. During quarantine, some businesses asked non-essential employees to hold off on logging into the network to avoid overlap between U.S. and European operations, while others restricted streaming access. Any business shifting their workforce to a remote model must account for the fact that they will lose some of the control they have over security when people start logging in from remote computers and home-based Wi-Fi networks.

A Better Tomorrow 

Yet, for all the upheaval of suddenly having to manage a remote close, it generally worked out. In many cases, businesses that had been holding out against out remote finance operations out of sheer tradition realized its advantages. The truth is, the remote close can be easier and faster than the traditional close. In its report, Change in the Office of Finance, Ventana Research found that 85% of companies surveyed that nearly or fully automate their close processes are able to close their quarterly books in six or fewer business days. Just 43% of those that have partially automated are able to work that quickly, and just 33% that use little or no automation have this ability.

Tax Implications 

Companies, or finance teams, also need to ask themselves this question: What are the tax implications of a shift to fully remote work?Each state has its own set of rules for the threshold under which a worker must file income tax returns, known as income nexus laws,typically $100,000 or 200 transactions. For companies that have employees working in multiple states or who live in a different statethan where the company office was, things get complicated. During COVID, 15 states plus the District of Columbia issued guidance that an employee working at home in a different state would not trigger income tax filing requirements. Yet, things quickly got contentious. In New England, for example, Massachusetts pursued a temporary measure to collect income taxes from employees that typically worked in the Bay State but began working from homes in New Hampshire at the start of shutdowns. New Hampshire quickly sued and the case is headed for the Supreme Court.

It’s clear that, as people continue to shift to a work from home model, companies — and states — will need to adjust. It’s not just income taxes that impact remote work either. If high-ranking executives like the CEO or CFO live in a different state than the companyheadquarters, that state can claim to be the source of intangible revenue like copyright or payment royalties, or loans.

Remote work can also impact sales and use tax, which is generally based on location of first use. For items like computers, software or cloud-based software licenses, taxes are typically paid according to the employee’s assigned office. States may have a right to tax those items if they’re not clearly in the new state. If an employee goes from a low-tax state to a high-tax state, that can mean new tax responsibility. Add up multiple jurisdictions as employees seek out cheaper real estate in remote locations and things quickly get complicated.

Finally, businesses need to be wary if they’ve negotiated tax breaks and incentives for opening an office or facility in a specific location. Sending those employees to work from home might trigger a claw back action from the municipality.

Home, Office or Hybrid 

Clearly, the shift to remote work has businesses evaluating the high cost of commercial real estate. Companies seriously considering such a move will need to calculate the per-employee costs of working completely in the office, completely remote or some combination thereof.

First of all, there are the considerations for home office setups. Who is responsible for setup and management? Are your requirements simple enough that employees can handle it themselves? Depending on the state in which you’re based and the type of remote worker,you may have to pay for even rudimentary technology. As a baseline, the U.S. Fair Labor Standards Act requires employers to reimburse remote-work expenses if paying for those items would push the employee below minimum wage or overtime pay thresholds. Maybe you have PCI-DSS or HIPAA considerations and need a managed service provider? A provider can run as high as a few hundred dollars per month, per user for a remote environment. Do you use managed desktops or virtual workspaces and what collaboration software and video conferencing will you need to add? Calculating the costs and savings extend far beyond the rent.

Again, income taxes emerge as a problem. For a fully dispersed workforce, a company might find itself dealing with dozens of different nexuses. On the other hand, a remote workforce might mean the company’s effective tax rates get cut in half, from a corporate income tax perspective. As another example, if a company’s newly dispersed workforce members leave cost of performance states and move to market sourcing states under the tax code, that too is a benefit.

All of this may be why a recent survey of 317 CFOs conducted by Gartner found that 74% plan to keep at least 5% of their employees working remotely.

While the COVID-19 pandemic has made clear the advantages—and perils—of shifting a significant portion of the workforce or the finance team to a remote model, the CFO is going to need to consider a lot more than just the rent. They’ll need to consult with IT, tax specialists, HR and security to truly understand the costs and benefits. Some just might be doing it on a Zoom call in their pajamas.

For more than 20 years, Oracle NetSuite has helped organizations grow, scale and adapt to change. NetSuite provides a suite of cloud-based applications, which includes financials / Enterprise Resource Planning (ERP), inventory management, HR, professional services automation and omnichannel commerce, used by more than 22,000 customers in 203 countries and dependent territories.

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