4 challenges companies need to grapple with after the way we work has changed forever
No one expected the pandemic to last more than a year, and many of the solutions for remote work and employee management that business leaders put into place were Band-Aids—short-term solutions that ended up serving much longer than they should have. Things have been hard. Really hard.
Yet now that more than a third of U.S. adults are vaccinated, there’s a collective sigh of relief happening across the country. But one thing is for sure: We aren’t going back to the Before Times. Companies big and small reorganized their workforce, streamlined their processes, and accelerated their technology updates over the past year, and many are envisioning a future that builds on these changes.
More than 60% of workers want a hybrid model with some time in the office and some time working from home, and many companies have adjusted their policies and their real estate to this new way of working. Yet such a massive shift in workplace dynamics brings challenges that business leaders—and employees—should get in front of before they exacerbate the equity issues already laid bare by the pandemic.
The pandemic might actually narrow the gender wage gap—but employers shouldn’t be taking any victory laps about approaching equal pay. The U.S. labor force is still missing nearly 2 million women, compared to a year ago, as COVID-19 amplified the nation’s caretaking crisis and shut down the service-sector businesses that predominantly employ women. Those who have lost work are overwhelmingly women who aren’t paid very well to begin with (and are disproportionately women of color). So when they become unemployed or leave the workforce and their salaries are no longer taken into account, their absence may actually improve, in a bitter irony, the disparities between what men and the remaining women earn.
“The nail person, the hair person, the retail [worker]—all of the sectors that have been clobbered are sectors that disproportionately hire Hispanic women, Black women, and women who have less than a college degree,” says Claudia Goldin, a leading economic historian and labor economist at Harvard.
Some of these businesses are reopening, as vaccine distribution accelerates, “but it’s going to be slow,” she adds. Many restaurants and other small businesses that closed during the pandemic will never reopen, so “we don’t even know yet the degree of harm this is going to do.”
Even before the pandemic, Latinas were paid 55¢ for every dollar earned by a white man, according to the National Women’s Law Center, with Native American and Black women earning 60¢ and 63¢, respectively. (White women earn 79¢ and Asian women 85¢, for a combined gender wage gap of 82¢ on the dollar, according to the NWLC’s analysis.)
These pay disparities add up dramatically: Over the course of a 40-year career, the wage gap costs Latinas an average of $1.1 million in lifetime pay, and costs Black and Indigenous women an average of almost $1 million, the NWLC projects. “That is what life-changing and generational money looks like,” says Fatima Goss Graves, president and CEO of the NWLC. “Women went into the pandemic with a wage gap and a wealth gap—they weren’t sitting on a nest egg of support waiting for this moment.”
Even higher-paid women who work in corporate, remote-friendly roles have taken on an outsize burden of childcare during the yearlong closures of many schools and day cares, with some also stepping back at work or leaving their jobs entirely to shoulder the pandemic’s caretaking burden. Goldin says the long-term impact on the salaries and pay equity of these women is more difficult to predict: “Did women make partner, get their first promotion, get the better clients, make the sale, and so forth—or did they lose out in their year teaching their children algebra?”
Still, she and other economists see one big silver lining to the past year’s workforce upheavals: The pandemic forced many employers to embrace remote work—and to allow the greater flexibility that, as Goldin’s work has long shown, helps narrow the wage gap.
“It used to be if you said, ‘I have to be home on Thursdays because that’s when my parents go to their physical therapist,’ you would be taken off projects. And now, everyone is doing that,” Goldin says. For employers, “this will reduce the cost of flexibility—and my point is always that flexibility is better for women.”
More flexibility brings up another salary-gap question, however: How will employers equitably adjust the pay of those workers choosing to remain entirely remote post-pandemic, especially if they live in or move to lower-cost parts of the country? In the past year, for example, Facebook and other large tech companies have said they will reduce the salaries of employees who choose to work outside of expensive hubs like San Francisco or New York.
“This is a great big general equilibrium problem,” Goldin says. If companies can get out of their commercial real estate contracts for renting large office spaces, “firm costs are actually going to go down,” she says. But employees “are going to have to bear more of a burden” of buying or renting homes with enough space to work out of, meaning that employers should factor in those expenses when making cost-of-living adjustments for fully remote workers.
It remains too early to predict how the pandemic’s acceleration of remote work will shake out for worker pay in general and for the gender wage gap in particular. But some experts remain worried about the latter, no matter how much women will benefit from increased workplace flexibility. In an August working paper, one group of economists predicted that the pandemic could ultimately widen the gender wage gap by five percentage points.
“Even if we assume some of these silver linings—of increased telework flexibility, and men doing more childcare—our model predicts that it could take 10 to 20 years for the gender wage gap to return to pre-pandemic levels,” says Jane Olmstead-Rumsey of Northwestern University, one of the paper’s authors. “That’s a really significant setback for women…and all of these things that we’re talking about are particularly severe for women of color.”
So you picked up and left town during the pandemic? Whether you moved into your parents’ basement across the country or to the country home you’ve always dreamed of, there are implications for your health benefits, which, of course, is one of the ways in which your company compensates you.
When employers design health benefits and choose an insurance carrier, they base a large part of the decision on the density and quality of the provider networks in the localities where they have the most employees, explains Lorna Friedman, global health leader of Mercer’s Multinational Client Segment, part of the firm’s health and benefits consulting business. (They want to give employees choice.)
Large, multinational companies may have good coverage everywhere, but many firms with a majority of workers in one spot do not, and employees who relocate may find that lower-cost, in-network provider options are limited or nonexistent. That may increase out-of-pocket costs for the employee, even as they (and their employer) pay the same premium for coverage.
A move to more permanently dispersed workforces will likely make the task of providing affordable, high-quality health benefits trickier for companies. A strategy for controlling costs and improving value in recent years has been steering employees to “narrower networks” of providers, from whom they’re more likely to receive high-quality care. That’s harder to do (and leverage is harder to come by) when employees aren’t concentrated in a few markets.
“Employers may want to be proactive and begin looking into health coverage on a universal level,” says Patricia Graves, a knowledge center adviser with the Society of Human Resource Management, who adds that with the shift, employers would likely face “more complex plan designs that could be administratively burdensome,” and that remote employees “may find it necessary to get supplemental coverage.” While that all may sound like a recipe for even more expensive health care, both she and Friedman expect telemedicine will remain and can help keep costs down in the future.
When Gregg Lemkau, one of the top executives at Goldman Sachs, retreated to a home in Hawaii during COVID, it wasn’t all luaus and beaches. Lemkau tweeted a picture contrasting the gorgeous view from his desk during the day versus the total darkness when he was actually awake and working because of the time difference with Goldman headquarters in New York. Working from Hawaii was “awesome in concept…unfortunately ‘in concept’ doesn’t happen until the sun comes up 6 hours into the workday,” he joked.
While companies have been coming to grips during the pandemic with workers distributed across many locations, the added twist of far-flung time zones can multiply the complications. For big, global companies like Goldman, working across time zones is a problem they’ve faced for decades. But with the spread of hybrid work after the pandemic, not to mention new programs trying to attract remote workers to sunny corners, from Barbados to Montserrat, a lot more employees—and their managers—may be forced to handle the time zone shuffle in the future.
In some ways, spreading workers across time zones can be beneficial. It’s easier to recruit a diverse workforce when location no longer matters. Customer service or other continuous functions can be manned around the clock by people on shifts in different zones. (Fortune editors in Europe post breaking news stories to our website before their American colleagues are even out of bed.) And for people working on team projects, progress happens at all hours. “When you wake up in the morning, the work has advanced while you were sleeping,” says Pilar Orti, director at Virtual not Distant, a consulting firm that helps companies deal with dispersed workers.
But there are challenges too. Problems include trying to set times for meetings that don’t require any participants to attend at crazy hours, the lack of direct face-to-face communication and social interaction for people in an isolated time zone, and delays that set in when work can’t proceed because a key player is offline for the day. And almost all asynchronous communications happens in writing, a drag for visually oriented workers.
Still, there are tools and tactics to minimize the problems. For projects, go a step beyond a shared calendar and keep an updated “work in progress” document that people in multiple time zones can rely on to discover the status and timing of next steps. Schedule Zoom calls and meetings to add back the visual component often overlooked in email and messaging apps. Newer apps like Loom allow people to record video messages that incorporate a view of what’s on their computer screen, offering the same kind of cross-time-zone communication as an email but with the visual element too. It’s also a way people can show off their varied surroundings to coworkers. “You get to experience different ways of living secondhand,” says Orti. “The world feels smaller, and changing it feels more manageable.”
Sometimes, making sure everyone is included requires slowing down, says Wade Foster, CEO of automation software developer Zapier, which counts over 400 employees spread across 18 time zones. “For decisions that are irreversible, set up a process that waits 24 or 48 hours so that folks across time zones can weigh in on the decision before moving forward,” Foster says.
It’s likely few companies realized how potentially permanent remote work would become when they sent employees home en masse in 2020. Over a year later, many workers are now scattered across the U.S. (or even the globe), in some cases laying down roots away from their pre-pandemic offices. That flexibility, however, poses a conundrum for employers and employees alike: What kind of tax complications might arise from this migration away from the office?
Unfortunately, it may not be simple; there are plenty of variables, including different tax laws for individual states and the size of the business. But what is clear: “There’s going to be many, many, many more people working remotely than there were before this thing started a year ago,” says Matthew Melinson, a state and local tax partner at Grant Thornton, and taxes are likely to become more complex. For employers and employees alike, the bottom line is to be “very mindful of the rules” in your state and your employer’s state, says Richard Auxier, senior policy associate in the Urban-Brookings Tax Policy Center.
Even prior to the pandemic, one key consideration for companies is—and increasingly will be—whether having an employee working remotely in another state gives the business what’s called “nexus,” or a taxable business presence, in that state or locality (there are a few inputs at play when triggering nexus, including payroll and sales). Through the pandemic, states are handling it in different ways: Fifteen states have said they won’t double-tax employees who are being taxed in their employer’s state, according to the American Institute of CPAs. But Melinson argues that as we move into the post-pandemic work environment, “I think the norm is going to become: You tax people where they actually work.” Businesses may then have to track their employees’ whereabouts (Are they working from their vacation home? Did they move out of state? Have they been unable to safely commute to the office across state borders?) in order to register, withhold, and file the appropriate taxes in each state. Melinson speculates that might create an extra administrative burden that could be a bit tougher on smaller or midsize businesses that might not have the systems in place to track where their employees are working from at any given time.
Another thing to consider for both parties, say tax experts: Depleted state budgets might prompt states to go on the offensive when it comes to collecting tax revenue from employees working remotely in their state. In terms of how that might change things moving forward, Auxier argues, “There really is both an idea of tax policy related directly to this idea of a new work environment, but there’s also just, there might be changes because cities are still trying to dig out from what happened over the past year.”
Where employees choose to put down roots, meanwhile, could have an impact on their tax bill if it’s somewhere other than where they were working prior to the pandemic. Though not all states have thrown down the gauntlet about taxing the income of remote workers living in their state, Melinson says, it’s possible employees could find themselves owing income taxes in more than one state. In particular, he says, watch out for states like New York, which has something called “employer convenience” and could tax you if your employer resides in New York, even if you don’t. Experts suggest keeping track of the places you’re working from and understanding the tax laws in those states and the state where your employer is based. On the flip side, however, Auxier points out that some states are even trying to create tax incentives to move—he names West Virginia as one that is pushing for more remote worker–friendly policies.
At the end of the day, employers will need to analyze the laws and make decisions about how they’ll handle remote work and communicate effectively with employees about any tax changes. But employees will also have to make a broader choice when it comes to where they want their office to be, too: “What do I want to do from a life standpoint and a work/life standpoint?” notes Melinson. “Tax usually won’t drive that overall decision in the majority of cases.”
Subscribe to Fortune Daily to get essential business stories straight to your inbox each morning.