New Businesses Embrace Remote Work

As big companies push their employees to work in-person in the office more, new businesses continue to welcome remote work. According to Gusto’s “2024 New Business Formation Report,” more than one-third of new businesses (35 percent) hired fully remote employees in 2023, up from 22 percent in 2022.

That’s not the only sign that new small businesses are open to remote work arrangements. The report also found that fewer new businesses are forcing new hires to work on-site full-time. In 2023, 43 percent of new companies hired employees for fully in-person roles, down from 51 percent in 2022, and 22 percent of the respondents employed a hybrid work model. The professional services sector is leading the way, with 61 percent hiring fully remote workforces.

Of course, remote work arrangements aren’t suitable for every new or small business. Here’s what you need to know before you take the plunge.

Remote work popularity in the post-pandemic era

The onset of the COVID-19 pandemic in early 2020 led to many employees and small businesses getting their first taste of remote work—a taste that lingered much longer than most expected. There was, however, a disparity between which jobs were eligible for remote work.

A survey conducted by the National Bureau of Economic Research revealed that the share of respondents who worked from home during the pandemic: “ranged from 10 percent for those without high school degrees to 50 percent for those with graduate degrees. The share was more than twice as large among those earning above $150,000 than those in the $20,000–$50,000 range.”

The survey also found that, from May 2020 to March 2021, remote workers invested an average of 15 hours and $560 upgrading their home work spaces, equal to an estimated 0.7 percent of the annual gross domestic product in the United States. Those improvements were on top of employer investments in “cloud computing, collaborative tools, and other technology to accommodate remote workers.” Meanwhile, patents for innovations to serve a home-based workforce more than doubled in the first nine months of 2020.

As the pandemic waned, remote work levels were expected to remain higher than in the past. However, employees’ desire for this eventually ran into employers’ increasing insistence on a return to the workplace.

By the fall of 2023, research firm Gallup reported that the number of remote workdays had stabilized, with a hybrid work model taking hold rather than fully remote work. “The average U.S. worker spent 3.8 days per month working from home, down from 5.8 in 2020 but higher than the 2.4 average from 2019,” the firm said in a blog post. For workers who had ever worked remotely, the “average was 7.7 remote days per month, compared with 11.9 in 2020 and 5.8 in 2019.”

Gallup also found that approximately 40 percent of “remote-capable employees have shifted from working entirely on-site to either a hybrid or exclusively remote work arrangement.” The likelihood of remote work opportunities remained linked to education levels. College graduates (72 percent) were more than twice as likely as non-graduates (34 percent) to have worked remotely. And far more women (63 percent) than men (40 percent) have worked remotely.

Not surprisingly, employees favor remote work arrangements. Nine in 10 remote-capable employees prefer some flexibility in their work arrangements, with the majority preferring hybrid work. Half are working hybrid schedules, with part of their workweek at home and part on-site. Three in 10 are doing fully remote work, and 20 percent are working entirely on-site.

Business leaders at large companies have signaled that hybrid work arrangements will continue to be offered in their organizations. Gallup found that eight out of ten chief human resources officers from Fortune 500 companies reported no plans to reduce remote work flexibility in the next 12 months.

Ongoing challenges for businesses with remote workers

Not all business leaders are welcoming remote or hybrid work arrangements with open arms, though. That’s understandable in light of the challenges many face—from rent obligations and governmental pressures to help restore municipal business districts to a stubbornly tight labor market and quiet quitting. Sometimes these pressures can manifest in a reflexive opposition to remote work. Make no mistake—opponents have a full quiver of reasons they can point to to shoot down flexible work options.

The productivity debate

Objections may be couched in concerns about productivity, as business leaders worry about the dedication and output of unsupervised employees. Studies based on standard measures of efficiency have found that fully remote employees are less productive than those working in person at the workplace. Potentially contributing factors include problems with communications and coordination.

More recent research, however, suggests that hybrid work doesn’t suffer from the same productivity issues. While fully remote work is associated with about 10 percent lower productivity than fully in-person work, hybrid work seemingly has no impact on productivity. Plus, it improves employee recruitment and retention (see below).

Moreover, while fully remote work can eat away at productivity, it can also generate significant cost reductions from space savings and global hiring opportunities that offset the costs of any declines in productivity. In other words, productivity shouldn’t be the final word—profitability is the more important metric. One study found that “fully flexible” public companies outperformed their non-flexible peers by 16 percentage points on revenue growth from 2020 to 2022 (13 percentage points if technology companies were excluded).

Concerns about the three C’s

Business leaders who are reluctant to embrace remote work also raise the impact on company culture, collaboration, and communication. These worries aren’t unfounded, as fully remote employees spend less time networking, receive less coaching, and have fewer one-on-one meetings with supervisors and other mentor figures. Zoom meetings and Slack channels can’t replace the interaction and idea generation that can come from informal lunches, after-work drinks, or even commutes lost in thought. And if different communication styles are hard to navigate in person, a digital divide can make it even harder.

Also problematic for some business leaders is that remote work arrangements can exacerbate the silo-ing that’s already common in certain companies and industries. People from different departments may rarely if ever cross paths, and tribal attitudes can develop, actively damaging company culture and blocking effective interdepartmental communication and collaboration.

Heavier compliance burdens

There’s no denying that remote work triggers a range of legal-, tax-, regulatory-, and human resources-related compliance issues. The applicable obligations depend in part on the location of the employer and the workers, as well as the type of remote work arrangement—fully remote, hybrid, international/cross-borders, permanent, or temporary. For example, the presence of a remote worker in a state where the business isn’t located or doesn’t otherwise conduct business could establish a “nexus” with the state that subjects the employer to filing and registration requirements, as well as taxation.

Mandatory and nonmandatory cybersecurity standards impose another layer of compliance responsibilities. Remote work brings a host of cyber risks that don’t necessarily exist for in-person work. (Although in-office work also has plenty of its own cyber risks.) The FBI has cited the rise of remote work as a factor in climbing cybercrime rates, so employers can’t afford to put their heads in the sand about this facet of remote work.

Advantages for new businesses offering remote work options

Smaller companies, including new businesses, are more likely to offer remote work options. Among other benefits, remote work allows for these highly budget-conscious companies to save on real estate or rent expenses.

Remote work options also provide access to a larger and farther-flung talent pool. It’s not just that remote work makes it possible to hire employees around the globe; it’s also that many job seekers today prioritize work-life balance and see remote work as an essential ingredient. As a result, postings for remote jobs receive many more applications than those for exclusively in-person work.

Remote work job postings also draw a more diverse applicant pool. A survey published in the Harvard Business Review (HBR) found that about 90 percent of employees who identify as female, caregivers, LGBTQ+, or disabled “consider flexible work options an important factor when deciding whether to stay in or leave their job”—a significant 30 percent higher than employees who didn’t identify with these categories. That’s noteworthy for small businesses that prize diversity, equality, and inclusion (DEI).

As noted above, remote work options can boost employee recruitment and retention, too. Employees who work from their preferred location tend to feel more engaged and empowered and are less at risk of burnout or likely to quit. These characteristics appeal to all employers, but are especially relevant at startups, where the hours are often long and intense.

Remote work options play a critical role in maintaining a stable workforce, as well. Gallup found that three in ten hybrid workers are extremely likely to leave an organization if they’re not offered at least some remote flexibility. Six in 10 fully remote workers share that sentiment.

How businesses can make the most of remote work

Despite how the remote work push-and-pull plays out in the headlines, developing and implementing an effective remote or hybrid work model doesn’t have to be a power struggle. The better approach is for business leaders and managers who came of age when in-person work was the reasonable expectation to adapt to today’s norms. Here are some first steps:

1. Craft and communicate an effective policy

For starters, employers would be wise to avoid the kind of all-or-nothing return-to-office mandates that are likely to alienate your top performers and prompt them to leave the company. Contrary to some employers’ beliefs, they don’t necessarily improve financial performance and they can lead to lawsuits.

Business leaders and managers would be better off developing a comprehensive picture of the work their teams perform, how the best results are achieved, and individual work styles and using that knowledge as the foundation for the policy. It’s also advisable to give their teams input when determining the optimal work model. A blanket approach that treats different functions (e.g., customer service, IT, accounting, and human resources) in the same manner can produce unintended negative consequences such as disengagement and retention.

Yet, few workers are currently allowed input on their employer’s work model policy. About 62 percent of the respondents in the HBR survey indicated they have no say. Nearly 40 percent said their company decides where they work, and 24 percent of the employees in such companies were unhappy with the work location policy. If the manager determines the policy, the unhappiness figure drops to 14 percent. When the team decides, it falls to six percent.

After a suitable policy has been developed, it must be clearly communicated to everyone. One study found that over half of employees didn’t understand their company’s hybrid policy. Employees must know when (and why) they’re expected in-office and when exceptions might be permitted.

2. Prepare your managers and supervisors

Once the policy is widely understood, if not before, managers and supervisors should undergo training for the new fully remote or hybrid work environment. They may think that they already know how to supervise and guide employees and cultivate connections and collaboration, but the traditional ways require substantial tweaking when people aren’t in the office every (or any) workday.

For example, managers should use in-person time with their employees wisely. Those periods shouldn’t be used for work that could be done at home without the commute or lengthy and formal group meetings that make employees dread in-office days. Instead, they’re better leveraged for one-on-one time between employees and their managers and collaborative work with co-workers. When group meetings are held, every attendee should have a legitimate reason for being there beyond putting in face time.

Fully remote businesses should be especially proactive about nurturing company culture. For obvious reasons, the lack of in-person interaction—both formal and casual—makes it more difficult to establish and maintain a cohesive culture. Fortunately, numerous technologies are available that companies can adopt to assist their employees in fostering connections through everything from online happy hours or trivia events to interdepartmental collaborations.

3. Adjust your performance management systems

Business leaders and managers will also need to adapt performance monitoring and measurement for the new normal. Some employers have already learned the mistake of focusing solely on visibility and activity metrics like badge swipe monitoring. Similarly, the amount of time spent online is a poor indicator of performance. A survey conducted by Slack found that, on average, employees spend 32 percent of their time on performative work, and 63 percent try to keep their status active online regardless of whether they’re actually working.

Note: These figures suggest that remote workers feel like their employers don’t trust them to complete their work and prefer employees who are in-office even though they have a policy that ostensibly treats workers equally. For example, managers might explicitly or implicitly communicate that they prefer face-to-face meetings to Zoom, making employees hesitant to take the remote workdays that company policy permits and possibly encourages. Managers’ words and actions should reinforce the policy, not contradict or undermine it.

One thing that’s clear is that remote and hybrid employees frequently don’t grasp their employer’s expectations for their performance. When employees aren’t in the office every day, it’s more important than ever that companies provide regular feedback and specify the team goals and individual performance metrics that will be used to evaluate performance and guide advancement decisions.

Finally, businesses with remote work arrangements should investigate the relevant compliance and cybersecurity implications as early as possible. Consulting the appropriate professional advisors can help reduce and mitigate the risks.

Learn more about entrepreneurship trends

The rise of remote work is only one of the factors behind the surge in entrepreneurship since 2020. Read all of the key findings from Gusto’s “New Business Formation” report in full in our blog post.