Human Resources

3 Keys to Meeting Compliance Requirements for Out-of-State Employees

Are you experiencing the big shift to having more remote workers from different states in your employee base compared to just a few years ago? Or perhaps your business has expanded to additional states, and you’re now welcoming residents from those states as employees. 

 

In any case, if your business has out-of-state employees, it’s critical to establish and maintain compliance with the laws and regulations of all the states your employees reside in. But what’s the best way to go about this? 

 

To help ensure your business stays compliant now and going forward, we’ve identified three keys to navigating and meeting compliance requirements for out-of-state employees. 

 

Key #1: Create an Out-of-State Employee Compliance Plan — Starting with the Basics

 

Benjamin Franklin said it best: “If you fail to plan, you are planning to fail.” By creating an out-of-state employee compliance plan, you’re giving yourself a roadmap to follow in assessing, identifying, and filling compliance gaps — and staying compliant going forward. 

The first part of the plan is basic but essential: Identify and address the compliance requirements for all your out-of-state employees. To start, you can: 

 

  • Gather information about where your employees live — their states as well as their cities, as municipal laws can apply. 
  • Research and determine the employee-related laws and regulations of your employees’ states and cities of residence.  
  • Make sure all information you have is accurate and up to date.  

Once you have this essential information, you can begin identifying any compliance gaps you may need to fill.  

 

Key #2: Make Sure Your Plan Covers All Critical Out-of-State Employee Compliance Requirements 

 

Now comes the heart of your plan: examining the compliance requirements for your out-of-state employees and addressing any gaps you find. While the following list is by no means exhaustive, it’s a good place to start: 

 

Employment laws — All employers must adhere to the employment laws of the states in which their employees work, and these vary from state to state. Some of the most typical laws are around: 

 

  • Protected groups 
  • Paid sick leave 
  • Paid family leave 
  • Minimum wage 
  • Overtime 
  • Breaks and rest periods 

For support in learning and understanding the above laws and more, consider consulting with state employee-law experts. 

 

Payroll tax requirements — Typically, an employee must pay taxes in any state in which they perform work, and their employer withholds state taxes from each paycheck. However, various states have exceptions to this — and offer tax credits, allowances based on how many days of the year an employee works there, and more. That’s why it’s crucial to check the requirements of each state. 

 

Unemployment insurance — Make sure you’ve established unemployment accounts in every state in which your employees work so they can properly file for unemployment pay if necessary. 

 

Workers’ compensation — Like employment laws, workers’ compensation laws and systems vary from state to state, and every state except Texas requires employers to have workers’ comp coverage. Businesses are considered responsible if a work-related accident injures their employee — even if that employee works from home — so be sure to establish workers’ comp insurance accounts in all states where your employees work. 

 

“Tax nexus” creationA “tax nexus” refers to a company’s presence in a state and resulting obligations to pay taxes. States consider a business to be active —and thus required to pay taxes — if they have a physical location or property there, employees working and residing there, or employees selling the business’ offers there. Know your status in each state to understand your tax obligations. 

 

Work location permitting — Check with local agencies of where your employees live to see if they require permits for all locations where work is performed. In some cases, you may need to obtain business permits for your employees who regularly work from home. 

Other areas of consideration include the classification of remote employees (as employees vs. independent contractors), privacy and data security, and more. 

 

Key #3: Put Proper Supports in Place to Ensure Your Compliance Efforts Succeed  

 

Staying compliant with laws and regulations governing remote/out-of-state employees in their states of residence is a crucial undertaking that requires companywide teamwork. The following supports can help make sure your team succeeds with its compliance efforts: 

 

  • Establish procedures for gathering and maintaining information on out-of-state employee compliance requirements — including regularly verifying that all information is accurate and current. 
  • Provide compliance training as needed to ensure human resources team members and all employees are equipped with the information, insights, and support they need to create and maintain out-of-state-employee compliance. 
  • Regularly communicate with employees about ways they can help your business stay compliant, such as reminding them to immediately notify you if they’re going to relocate to another state. 
  • Provide state-specific “compliance checklists” employees can reference to ensure everyone is aware of the laws and regulations governing remote/out-of-state employees in their states of residence. 

 

Would you like more information on how to navigate and meet compliance requirements for your out-of-state employees? If so, we’re here to help. Schedule a consultation now. 

 

Sources: 

https://www.score.org/blog/how-pay-remote-out-state-employees-stay-compliant 

https://www.wolterskluwer.com/en/expert-insights/6-compliance-considerations-for-remote-employees 

https://www.cupahr.org/blog/navigating-compliance-with-multi-state-remote-workforce/ 

https://teamsoftware.com/blog/employees-working-out-of-state/ 

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