CBRE: Hybrid Work Can Mean Hidden Risks for Office Incentives

Hybrid work might be a good strategy for some companies. It keeps employees happy, which can lead to better retention rates.

However, a recent CBRE report said that the rapid adoption of the hybrid work model also means new compliance risks for companies receiving local and state economic incentives.

Companies face a fragmented landscape where temporary pandemic allowances have expired, state rules conflict with local mandates, and compliance definitions often compromise current benefit collections,” the report said.

Part of the reason is that organizations today are relying on economic development incentives written and enacted before 2020. State and local authorities have enacted requirements for hybrid work models. However, “on-site physical attendance requirements now range from 0% to nearly 60% of a standard work week,” CBRE said.

At the same time, companies that don’t meet jurisdictional requirements could lose benefits, face financial penalties or risk violating multi-year employment commitments.

Three common incentive compliance risks include the following:

Expiration of temporary allowances. Pandemic-era relief in many jurisdictions has expired without formal notice. Companies that rely on those allowances after they have expired could be considered retroactively non-compliant.

Misapplication to retained employees. Compliance rules can apply to new hires and retained positions. Existing remote workers can’t be grandfathered into meeting the new attendance requirements.

Credit reductions and contract defaults. A reduction of on-site employees reduces the credits a company can claim, resulting in clawbacks or other penalties related to multi-year retention commitments.

The implications of compliance risk are huge for organizations. It should also be considered when seeking a suitable site for these companies.

“Companies engaging in site selection need to consider their workforce mix at the start of the project,” CBRE said.

A generous state or local program might define a qualifying job in a way that doesn’t align with the hybrid-workforce norm. The result could be compliance challenges.

The report suggested that corporations consider three steps to help mitigate compliance risk: screening programs against projected workforce models before site selection, auditing executed agreements to identify non-compliance exposure early, and renegotiating terms with economic development agencies when gaps occur.

“Agencies typically prefer renegotiation over clawbacks when a business shows continued investment and good-faith effort,” CBRE said.

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