A Swiss court recently ruled that employers should contribute to the rent of employees who work from home. But before you start organizing a US movement to fight for a right to live in a beach house, work via Zoom, and force your employer to pay for said beach house, consider a couple of caveats.
The Swiss ruling only applies to those who are forced to work from home rather than those who choose to work from home. Of course, the line can be blurry, especially in the post-COVID world. A lawyer could make a case that if the employer cannot guarantee your safety from COVID in the office, you are actually forced to work from home, and therefore, beach house. It sounds crazy, but courts have had crazier rulings.
Actually, forget the courts. Congress could easily pass something like that in the CARES Act, the HEROES Act, or one of the many relief packages to come. Is it a good idea to call your representative and demand that someone else pays your rent if you are working from home? Imagine a handful of scenarios.
1. Your employer pays your rent, and it is taxed as regular income. If you are a highly valued employee (that is, if the revenue you bring in still exceeds what you now cost to employ), the employer might consider this as a government-mandated wage raise, add rent into your total compensation package, grumble, and perhaps cut costs somewhere else. Winner: you. Although, do not be surprised if you don’t get a raise any time soon. The rent just cannibalized your future raise.
2. Your employer pays your rent, and it is taxed as your regular income. However, you are not a top performer, and adding rent to your current compensation package would make you unjustifiably expensive. In that case, you might be asked to opt-out of working from home (therefore no rent payments), or your regular compensation might be reduced by the amount of the rent payment. Outcome? No change, except that rather than paying rent yourself, now your boss pays your rent. Consider some unintended consequences too—from your boss knowing about your lifestyle to renters inflating the rents under the fallacious assumption that you do not care because you are not paying.
3. Your employer pays your rent; it is not treated as your regular income, and therefore not taxed. You are a high performer, so your employer adds that to your compensation package. It’s an extra cost for the employer (so he’ll have to cut somewhere else) and a tax-free bonus for you.
4. Your employer pays your rent, you are not taxed on it, but you are not a top performer that deserves a raise, so to keep your cost constant the employer reduces your wage by the exact same amount. For example, if you used to pay $1000 per month for rent, but now your employer pays that and your pay is cut by $12,000 per year, it means that you are not paying taxes on that $12,000. This could translate into savings of a couple of thousands of dollars per year.
Of course, there are countless other scenarios possible, especially if we try to account for all intricacies of state and federal taxes, personal details, etc. However, a couple of tendencies emerge.
First, under any legal setup, employees who are considered valuable come out on top. It is a beautiful or sad truth (depending on your point of view) that your skills and value for the company is your best bet in any negotiations.
Second, if your performance is not stellar and you are the first on the chopping block, this “help with rent” could be the final push to make the company cut you. Or cut your pay in proportion to mandated rent payments.
Third, it raises many questions, i.e. why should this apply just for rent? What about forcing an employer to pay your mortgage? What if you rent your friend’s house and he rents yours—should your employers pay for that too?
Fourth, if you like the scenario where a part of your income is not taxed, why go through complicated mechanisms of rent to achieve that? Simply reducing taxes on wages would achieve the same result, without the complications, perverse incentives, etc. Less taxes, more take-home pay, and people will figure out rents themselves.
If you think rents are too high already, then passing the rent straight onto the employer will likely increase them further. To lower rents, we need denser developments, easier zoning laws, basically—more houses. But that’s a whole other discussion.
P.S. And if you are thinking about moving to Switzerland to reap the benefits of this new regulation, recall that the actual rent the employer was ordered to pay is up to $154 per month.