Cost and Employer Realities of Operating Remote Companies
Mapping Favorability: The U.S. Landscape of Employment Practices
Watching Elon Musk move his companies headquarters and state incorporations around the U.S. like its a chess board resonates with me - and my government policy friends and fellow entrepreneurs should be paying attention.
The VenturesCX companies have created a lot of jobs in a lot of locations, and a key initiative this quarter is to rationalize where we create those jobs going forward. We currently operate in 23 states, down from 30, and I’d like to focus on just 5-7.
I’d say we’ve gone through three stages of learning over the last three years:
Hire just about anywhere
Eliminated about 10 States and local jurisdictions for hiring due to unfavorable taxes and employment laws
Creating the short list of locations that are most favorable in terms of cost and complexity of doing business
As a guy from a small town in Kansas, I tend to favor bringing employment to more rural America when possible, but not all locations are created equal from an employer standpoint.
Beyond minimum wage laws that can now be different by city and county, the SUI rates vary wildly by State as do regulations around Sick Leave, Paid Time Off distributions, and other benefits.
Remote and hybrid companies can also fall into the “nexus trap” of having to pay pro rata corporate income taxes based on merely having an employee in a state. Ouch.
Where you chose to incorporate is also up for grabs. Remember that incorporating in a state is different than operating there. I’ve incorporated a lot of companies in Delaware over the years, and never had a physical presence. I’ve seen zero value in it, and now find it as unnecessary overhead.
These factors, when taken on balance, can increase operating costs in some states by 5%-10%, even if the base wage rate you’re paying is the same. So what looks like a competitive advantage by increasing our hiring pool and minimizing real estate expense quickly becomes complex and expensive.
We currently use a PEO to manage compliance across all those locales, which is smart when startling out but becomes expensive as you scale.
By narrowing our hiring to fewer but more favorable job markets, I believe we’ll shed unnecessary expense and complexity that can be reinvested back into local community building in areas where we want to operate.
We’ll share the data and comparisons as they come together. And any feedback or experiences in this topic are welcome.