With companies like Twitter, Salesforce, Facebook, Google, and many others making remote work a permanent option, it’s clear that a largely distributed workforce is here to stay. No longer viewed as a temporary measure, remote work—or at least a flexible, hybrid model—will be the norm going forward.

This is great news for both employees and their companies. Not only does it provide tremendous flexibility for employees, allowing them to work wherever best fits their lifestyle, but it also allows companies to take a much more agile approach to hiring and team building. No longer limited by location or geography, organizations can tap into a much broader and more diverse talent pool. And, of course, there are substantial savings associated with reduced office space and operational overhead.

Hidden savings on local taxes

Aside from the obvious savings, many companies are missing out on a significant, albeit somewhat hidden, savings opportunity: local and municipal taxes. Across the country, cities like New York, San Francisco, and Los Angeles assess business taxes based on sales and services performed within the city. For most, these taxes are tied directly to the physical presence of employees working within the local jurisdiction.

But with workers now distributed outside city limits, many companies are unknowingly overpaying these local taxes. The problem is that navigating this tax landscape is extremely complex, especially without accurate, reliable data. But organizations that can get a handle on where their employees are working—and prove it—could potentially save millions of dollars in taxes immediately. Here’s how.

Identify location with confidence

Since roughly mid-March, millions of workers have been displaced from their downtown offices, most working from home outside of city limits for months. In New York alone, a number of hedge funds, asset management, and legal firms have already said they don’t plan to return to their Manhattan offices. The same goes for workers at Twitter, Square, and many others in San Francisco.

Yet, many companies continue to pay millions in local taxes as though it’s business as usual. New York’s 4% Unincorporated Business Tax (UBT) raised some $2.14 billion last year alone and San Francisco levies a 0.38% payroll expense tax, up to 0.56% gross receipts tax, and up to 0.60% homelessness tax for employees working in the city.

By implementing a solution to identify and track employee locations, companies can substantially lower their tax burden and avoid overpaying these city taxes. Hundreds of millions in tax revenue are at stake, and there’s an opportunity for tax-savvy hedge funds, law firms, and UBT-prone businesses to reduce their tax footprint by an average of 2-3%.

With accurate data, companies can say with confidence exactly where their people are located—and who’s subject to the tax. In fact, one company is already saving an estimated $3 million in UBT taxes this year alone by showing which employees are working outside the city.

Compliance is critical

Locating your people is only half the battle, especially for large organizations with multiple offices. Managing tax compliance across different municipalities with spreadsheets–the standard method for many businesses–can be a disaster when things change rapidly. With employees in various locations subject to different regulation, spreadsheets rely on humans to keep the data up-to-date to ensure accurate accounting and payment. When people move or the rules change, the spreadsheet is instantly outdated.

Not to mention, with government budgets already tight due to the economic slowdown, it’s likely that many tax entities will be increasing enforcement. With so many moving parts to manage for HR, legal, tax, risk management, and finance, that means having indisputable proof in the form of audit-quality reporting is crucial for avoiding costly audits and penalties. Lacking a confident audit trail, companies may have no choice but to overpay, at a substantial blow to their bottom line.

“Taxpayers can realize substantial tax savings by identifying work performed outside of the city limits. We have seen millions in overpaid tax related to over-reporting San Francisco compensation,” said Eric M. Andersen, Managing Director, Andersen Tax. “A technology platform that can identify work location with a high degree of accuracy is a useful tool to substantiate tax reductions.”

With a solution in place that automatically tracks employee location in real time, companies can rely on this data to know who’s where and what laws apply at any given time. Automated solutions can leverage a multitude of factors, like a mobile or laptop app log in, VPN login, GPS and more, to automatically and accurately determine an employee’s location. Even better, with audit-ready reporting, companies can prove their position and validate their tax liability to avoid noncompliance risk and underpayment penalties.

Keeping up with people on the move

Remote work affords employees incredible flexibility to work from anywhere—a NYC-based staff member can take an extended working vacation to visit family in Iowa. Or, an employee normally in the San Francisco office can take a long-term trip to a timeshare in Florida. Folks can even move abroad: many countries are offering digital nomad visas, enticing knowledge workers with the opportunity to escape to an exotic locale.

But this flexibility for employees makes it extremely difficult for employers to keep up, made worse when employees don’t notify their manager or HR. Cities, states, and countries all have varying regulations for the type of work and the length of time an individual can work within their borders before both they and their employer owe taxes, and this complexity can quickly snowball into major compliance risk.

Amid the current economic uncertainties, no company can afford to overpay or underpay, exposing themselves to the high cost of an audit, penalties, and overwhelming tax liabilities. Deploying a solution that provides automatic tracking of employees on the move is the only effective, realistic, and reliable way to maintain tax compliance with flexible and distributed workforces.

With remote work only expected to grow, now is the time to invest in solutions that deliver immediate ROI and compliance peace of mind, along with a robust foundation for companies to manage this new world of work. Companies can begin to take advantage of tax savings immediately by proving their employees are not subject to municipal taxes, while also ensuring accurate reporting and payment for wherever their travels lead.

Terry Schmid is the CFO at Topia.