Accounting of Lawyers Working Remotely

“The future of work is remote, and the future of remote work is flexible.”
-Sara Sutton, Founder & CEO of FlexJobs

What are the accounting implications of lawyers working remotely?

According to McKinsey, in 2022, 58% Americans reported having the opportunity to work from home at least one day a week.

Indeed, some law firms and legal departments are shifting to a mixed remote work model, which allows lawyers to be more flexible in their work schedule and location, which can increase productivity and job satisfaction. Additionally, as we have seen, it can also help reduce overhead costs for law firms, especially impacting office space and utilities costs. But as lawyers and law firms navigate the shift to remote work, it is important to consider the accounting implications that flow with it.

State Tax Implications

One of the major accounting implications of remote work for lawyers is state income tax. State income tax laws can vary significantly from state to state, and lawyers working remotely in different states may be subject to multiple state income tax laws. For example, if a lawyer is working remotely from California but is primarily working for clients in New York, they may be required to pay state income taxes to both California and New York.

Additionally, some states have a “convenience of the employer” rule, which means that an employee working remotely in a state other than their employer’s state may still be subject to that employer’s state’s income tax laws. It is important for lawyers and law firms to understand the state income tax laws that apply to them in order to ensure compliance and avoid any potential penalties.

To navigate this, lawyers and law firms may want to consider consulting with a tax professional or accountant who specializes in multi-state tax laws. They can help to determine which state(s) the lawyer is required to pay taxes to, and can also provide guidance on how to properly file taxes in multiple states. It’s also important for lawyers and law firms to keep detailed records of their work activities, including the location and duration of their work, to support any tax filings and potential audits. So, what’s important?

Keeping detailed records of their work activities, including the location and duration of their work, to support any tax filings and potential audits.
Utilizing tax software and/or professionals to help manage multi-state tax filings and compliance.
Staying informed about any changes to state income tax laws that may impact remote workers.
Consulting with outside professionals for guidance and support. It’s important for lawyers and law firms to stay compliant with state income tax laws and to proactively manage the tax implications of remote work in order to avoid any potential penalties.

Ways To Help Your Remote Legal Staff Maintain Accurate Accounting

To make things easier, here are some measures you can implement at your law firm to keep track of lawyers and staff working remotely:

Use timekeeping software to accurately track the hours worked
Clearly communicate billing policies and procedures for remote work
Regularly review and update expense reimbursement policies for remote work-related expenses
Encourage remote lawyers to keep detailed records of their expenses, such as receipts and invoices
Create a system for remote lawyers to submit their time and expenses on a regular basis
Implement a process for reviewing and approving time and expenses submitted by remote lawyers
Regularly review and update accounting procedures to ensure compliance with regulations
Provide training and support for remote lawyers on accounting-related matters
Implement a system for tracking and monitoring the miles driven by remote lawyers for court appearances and other legal proceedings

Accurate time tracking ensures that the firm is billing clients for the correct amount of time, avoiding legal and ethical disputes and protecting the firm’s reputation. Accurate time tracking also allows insight into how remote lawyers are using their time, which can help identify areas where productivity can be (or should be) improved. Finally, it helps in cost management by identifying areas where the firm is incurring unnecessary costs and making adjustments accordingly. All of these factors impact the firm’s bottom line.

Please note that the information provided on this website is for general informational purposes only and is not intended as legal or tax advice. The information is subject to change, and it is important to consult a specialist before making any decisions. Law Ledgers provides accounting services to New York lawyers and law firms, including escrow protection, tax advice and bookkeeping administration. Contact us today for personalized support.