With the coronavirus-related rise in the number of employees who are permanently working remotely, workers are testing the limits of their newfound freedom. The locations where remote employees can work are not limited by geographical constraints. As long as they have a strong internet connection, they can log on and work from any destination. For this reason, some remote workers are exploring options like moving out of state while continuing to work for their current employer. Additionally, some employers are considering recruiting and hiring new out-of-state remote workers in order to find more qualified candidates.

While businesses and employees alike tend to focus on the functional aspects of working out-of-state, it is essential to remember the legal implications of hiring an out-of-state employee or working for an out-of-state employer. When a business employs an out-of-state worker, it will incur additional financial and legal responsibilities to remain in compliance with the laws of both states. Additionally,  many employees do not realize that they could potentially be taxed for multiple states and localities if they either move out of state and continue working for their current employer or they accept a remote job with a business located in another state.

This article will explore some of the most important legal considerations that employers should keep in mind when deciding whether to authorize an existing employee to work remotely from another state or to hire a new out-of-state worker. While many businesses ultimately decide that employing remote workers is worth it, it is crucial that employers make informed decisions when making this decision. 

Tax Implications of Hiring Out-of-State Remote Workers

When an employee works in a state in which your business does not already operate, it may create a sufficient relationship between your business and the employee’s home state to subject you to its tax system. This may include income taxes, gross receipts taxes, and sales and use taxes, among others. Your business may also be subject to city or county taxes. Although laws vary between states, you may need to file and pay taxes, register with the state or locality, and/or withhold the appropriate taxes from the employee’s pay.

Workers’ Compensation and Unemployment Insurance Issues

Because workers’ compensation and unemployment insurance programs are typically administered on a state level, when your business employs a worker who lives and performs services in another state, you will likely need to obtain additional coverage in the state where the employee lives. If you fail to obtain coverage in the worker’s state, your business risks liability in the case of a lawsuit as well as penalties for noncompliance with state law.

Applicable Employment Laws 

 Another issue that is often overlooked is the employment laws that will control your business’ relationship with an out-of-state employee. The laws of the state where the employee lives and performs work will apply to an out-of-state worker rather than the employment laws of the state where your business is located. This means you may have to comply with different restrictions and requirements for your out-of-state worker than for your in-state workers.  

Some common examples of employment laws that differ between states include:

• Wage and overtime laws

• Break laws

• Minor labor laws

• Discrimination laws

• Paid time off and family medical leave requirements

• Requirements for other types of leave, such as jury duty, medical leave, voting leave, and crime victim’s leave

• At-will employment versus “right to work”

• The questions you can ask on employment applications

• The factors you can consider regarding criminal history

• Whether continuation (“mini COBRA”) benefits must be offered and the qualifications of those benefits

• Employment protections for medical marijuana

These are only a few of the legal requirements that can vary from your business’ home state laws.  Many state employment laws can be a bit unique and obscure; for example, Colorado requires that a salary range be listed on job postings, Michigan prohibits discrimination based on height or weight, and Illinois requires employers to file monthly unemployment wage reports. 

While it is entirely possible for businesses to comply with legal obligations created by out-of-state remote workers, employers should do their due diligence before agreeing to an employee move or an out-of-state recruitment push. It is essential to know the implications of employing a worker who lives in a specific state, and your business will likely want to hire legal counsel to assist with understanding and complying with these new requirements.