Remote work, hybrid schedules, frequent business travel, and cross-border projects have completely changed how (and where) work gets done (and are no longer attributed to being a post-pandemic relic).
Looking forward, remote and hybrid work are becoming a defining feature of how companies hire, retain talent, and compete. As of 2025, roughly 22–23% of U.S. employees worked remotely at least part of the time, representing more than 32 million people, a massive shift from pre-pandemic norms.
But here’s the paradox: while work wherever you want has become normal, tax compliance, especially around where work actually happens, has not caught up.
Many leaders are doing their best to evolve policies to match modern work patterns, but there’s still the lingering rain cloud above their head named ‘tax exposure’. Those well-intentioned practices that top-performers are asking for and expecting are creating and leaving significant tax risk on the table.
Below, we break down the top 5 tax compliance mistakes companies make with distributed teams, but in a way that actually feels like a conversation, with real insights and data you can bring back to your team.
1. Thinking Payroll Location = Work Location
This is honestly the most pervasive blind spot we see.
Leaders often assume that because an employee is paid from a particular state or country, that’s where tax risk lives. In reality, tax obligations follow where work physically happens, not where someone’s payroll record says they are based.
That matters a lot right now. Even with remote work slightly down from pandemic heights, millions of employees still telecommute, and that doesn’t include travel or digital nomad lifestyles.
Real world impact: One employee working just a handful of days from another state or country can inadvertently create withholding or corporate tax liabilities for your company based on IP data.
Lead with curiosity, not assumptions: Leave no base unattended. Ask yourself: do we really know where work happens, or do we just hope our records reflect reality?
2. Relying on Self-Reported Spreadsheets
Let’s be real: spreadsheets have their place. But they shouldn’t be your primary tax compliance tool.
Here’s why:
- We’re only human. Manual entries tend to be inconsistent and prone to error.
- People forget where they worked, especially over weeks or months.
- In an audit, “we asked people to fill this out” won’t impress the tax man.
And with hybrid models now dominant (most remote-capable employees split time between office and remote work), these informal systems break down fast.
A leadership moment: If you wouldn’t trust a spreadsheet in your CFO’s office during a review or audit, don’t trust it for tax compliance.
3. Ignoring State & Local Tax Thresholds
Federal tax compliance is often top of mind. But state, local, and even city jurisdictions are where the real distributed work tax complexity lives.
Many jurisdictions trigger obligations based on:
- Number of days worked
- Revenue generating activities
- Repeated visits
- Project work happening on site
And the rules vary wildly, sometimes even between neighboring states.
This isn’t theoretical. Compliance thresholds can mean:
- Withholding requirements
- Corporate tax exposure
- Retroactive filings and penalties
Yet many companies only discover these “threshold triggers” after it’s too late.
A leadership tip: Understanding the journey of work location data is just as important as knowing the tax laws themselves.
4. Treating Business Travel as “Risk-Free”
Business travel used to be a footnote on expense reports. In a distributed world, it’s a tax compliance accelerant.
Employees might:
- Fly to client sites
- Visit teams across states or countries
- Attend conferences repeatedly in the same locations
None of that is remote work per se, but over time, the days add up.
What feels like “just a trip” can trigger:
- Nexus exposure for the company
- Personal income tax filing obligations
- Withholding risks
Real talk: Travel isn’t just a business cost. It’s a location data signal with compliance implications.
5. Waiting for an Audit to Reconstruct Work-Location Data
This might be the riskiest mindset of all.
Too often (in our humble opinion) teams look at location data only after they get a tax notice, and then scramble to piece things together with patchy records.
Here’s the problem:
- Employees move on
- Systems don’t sync
- Data is incomplete
In that scenario, you’re not proving squat. Tax authorities don’t care how well-meaning your team is. They care about defensible data.
Leadership insight: Audit readiness shouldn’t be a reactive sprint; it should be built into the geography of your working strategy.
So, What Should Leaders Do?
The data is clear: flexible work isn’t going away, and neither are the tax implications that come with it. As we move deeper into the distributed era, tax compliance isn’t just an HR or finance issue; it’s a strategic business box that organizations need to be prepared to check off every year.
Here’s a smarter approach:
- Automate work location tracking — with privacy in mind, so employees feel respected.
- Monitor thresholds proactively — not retroactively.
- Break down silos between HR, finance, and legal — tax risk lives at the intersection.
- Build audit-ready processes — don’t wait for the doorbell to ring.
Final Thoughts
The biggest mistake leaders make isn’t ignorance; it’s assuming that the old rules still apply.
Remote and hybrid work have reshaped the landscape of talent, collaboration, and mobility. We’ve all seen the tech adoption curve model. Leaders and their compliance strategies must evolve with change, even when it feels uncomfortable, to avoid falling behind and being labeled a ‘laggard’.
If you’d like help thinking through how to operationalize work-location compliance in your organization, from real-time alerts to audit-ready reporting, speak with a team member today!