Employer Obligations When Employees Work in Different State

The current pandemic has changed the way that we work in many ways. Since early last year, employers have been challenged not only with shutdowns and layoffs but also with learning to work in a virtual world; a format that many employers refused to move to in the past. A remote work environment is a huge difference in the way work was conducted previously.

Many businesses have had positive results since moving to a remote work format. However, one of the concerns when working with a remote workforce is staying compliant with employment laws when one or more employees live in a different state than where the employer is located or a different state than where they previously worked for that employer. Or, possibly, the employer finds themself willing to hire new, remote employees who reside in another state already.

If you are one of those businesses, here are some things you need to know if you have employees who work in a state outside of where your business is located.

Register with the appropriate state agencies

You will likely need to register with state, and perhaps local tax agencies, as you will need to withhold income taxes from the state the employee will be working from. Depending on the state, you may also need to register with the state’s labor and unemployment agencies.

If you have remote employees working in multiple states, you will need to register in each, separate state.

Tax obligations

Having an employee working in a particular state is sometimes enough to establish nexus, or “business presence” in that state. Most, but not all, states require businesses to pay several types of taxes to their state if they have a “business presence” there. There is a possibility an employee working in another state may trigger a tax obligation in that state due to nexus. This obligation may include state income, gross receipts, and sales taxes.  

If your employees are working out of state due to COVID-19, you may get some relief. A number of states established guidelines exempting businesses from state tax obligations if their employees work from home due to the pandemic. 

In some cases, your payroll provider will be able to handle these income tax withholdings and filing requirements for you, alleviating this burden. Contact your provider to see what services they offer.

Unemployment agencies

You will likely receive your unemployment tax rate and payment instructions when you register with the state’s tax or unemployment agency. This process will differ, state to state.

Learn the state’s pay and labor laws – as well as other laws that may apply

In addition to withholding state income taxes and registering with unemployment agencies, you must also follow your employee’s state pay and labor laws. 

Here are some laws you should become familiar with for each state in which you have an employee:

Minimum Wage

What’s the minimum wage in the state, city, and county where your employee works? 

You will need to ensure you are paying your employee at or above the highest minimum wage, whether that’s federal, state, or county. 

Pay Stubs

Are you required to provide a pay stub?  If so, what information do you need to include on your employee’s pay stub?

Some states require written or printed pay stubs, while others do not. If your employee works in a state that requires physical pay stubs, you will need to provide one.

Payday Requirements

Are there requirements regarding how often an employee must be paid? 

Depending on the state, you may be allowed to pay on a weekly or bi-weekly payroll while other states only allow payment on a semi-weekly or monthly basis. There may also be states that have specific requirements based on the type of work the employee performs. If your typical payroll frequency is not allowed in a remote worker’s state, you’ll need to follow the payday laws in that state. 

Are there rules about how a regular paycheck or final paycheck should be delivered? 

There may be laws regarding the timeliness of an employee’s final paycheck. You will need to provide your employee’s final paycheck within the timeframe required by their state laws, keeping in mind that the timeframe may differ depending on whether (or when) your employee quits or is terminated.

Disability Insurance

Do you need to withhold money for state disability insurance? 

Several states require employers to withhold money from their employee’s paycheck for state disability insurance. You will need to ensure this is happening if your employee works in one of those states.

Overtime

How is overtime calculated?  Is it different than the federal overtime calculation requirements?

There may be exemptions to overtime that apply federally, but the state your employee works in does not recognize the exemption. If the state law differs from federal law, you must follow the law that is most beneficial to your employee. 

Income Tax

Do you need to withhold local income tax? 

You will need to pay local income tax if it is required in your employee’s city or county, even if it is not required in their state.

Breaks and Meal Periods

Are there local labor laws regarding paid and unpaid breaks? 

Every state has laws about how many paid and unpaid breaks you need to provide employees. Be sure you communicate these laws to your employees and provide the mandatory break periods. 

Don’t forget to take into account any state or local laws regarding lactation breaks for nursing mothers.

Workers' Compensation Insurance

What are the workers’ compensation insurance requirements in their state? Are you required to purchase workers’ comp for your employee?

Requirements can vary by state, industry, and the size of your company.  

Leave Laws

Are there any state, city or county leave laws that you need to follow?

Many states have their own protected leave laws outside of the Family and Medical Leave Act (FMLA).  Some states also provide paid leaves for various family and medical reasons, amongst other reasons.

Paid or Unpaid Sick Leave Laws

Does the state, county or city have any sick leave laws that would need to be addressed that may be different from federal or state law where your business is located? If so, those laws will need to be followed for your remote workers located in that state.

Electronic Signatures

Employers should also be familiar with any state laws governing electronic signatures where the remote employee resides, or where the employer operates, that may apply when documents are signed virtually. Any new hire documents may not be valid if you do not follow the appropriate requirements.

Immigration

Completing the I-9 form is legally required for all employers.

During the pandemic, rules regarding documents needing to be reviewed in-person have been temporarily altered to allow employers to use virtual verification of documents for the I-9 form. These temporary rules were put in place because employees are currently working remotely to avoid spreading the virus.

However, you must make sure to pay attention to the expiration dates of those rules, and establish a process for someone in those other states to assist with this in the future. The reason for this is that the normal rules specifically state that you cannot verify these documents virtually or using a copy of the items, they must be inspected in-person. This can be accomplished by using a local notary.

Required Posters  

Employers have to follow both federal and state labor law posting requirements. Required posters detail your employees’ employment rights relating to things like leave laws, minimum wage, safety, and equal opportunities, etc.

Common federal workplace posters include:

• Fair Labor Standards Act (FLSA)
• Family and Medical Leave Act (FMLA)
• Occupational Safety and Health Act (OSHA)
• Equal Employment Opportunity (EEO)
• Families First Coronavirus Response Act (FFCRA)

Each separate poster generally has its own rules on who needs to post it, how big the poster has to be and where it needs to be posted.

In addition to required federal posters, you must post specific state-required posters that apply to your business and employees as well. 

Generally, posters must be displayed in a conspicuous place where all employees will see them. Commonly these are displayed in a break room, where employees frequent.

In addition to your on-site employees, you have to ensure remote employees have the same, easy access to these posters.

For these employees you can:

• Post them on an internal company website employees can access easily
• Mail them
• Email them

If you are unsure what federal posters are required for your business, you can either use the Department of Labor’s FirstStep Poster Advisor, or connect with us and we will help.

Attention Cascade Members: As a member, you have access to a robust library of employment laws and resources for all 50 states, including required posters.  Check out the Member Only Area for all types of helpful resources for managing a remote workforce.