Hiring Remote Employees: A Checklist for Navigating State Labor Laws
The shift toward remote work has opened up a world of talent, allowing businesses to hire the best candidates regardless of where they live. However, hiring an employee in a different state is not as simple as sending a laptop and a Zoom link. When you hire a remote worker, you are often "doing business" in their state, which triggers a complex web of local labor laws, tax obligations, and insurance requirements.
Navigating these regulations can be daunting, but failing to do so can lead to costly penalties and legal disputes. To help you grow your team safely and legally, we have compiled a comprehensive checklist for managing state-of-residence compliance for your remote workforce.
1. Register for Business Nexus and Tax Withholding
When an employee works from home in another state, your company establishes a "nexus"—a legal presence in that jurisdiction. This typically requires you to register with the state's Secretary of State and Department of Revenue.
State Income Tax: You must withhold income tax for the state where the work is performed, not necessarily where your headquarters is located.
Reciprocity Agreements: Check if your home state and the employee’s state have a reciprocity agreement, which might simplify withholding rules for neighboring states.
Unemployment Insurance: You must register and pay into the unemployment insurance fund of the employee’s home state.
2. Audit Wage and Hour Compliance
Minimum wage, overtime rules, and pay frequency vary significantly across the country. As a general rule, you must follow the laws of the state where the employee is physically located.
Minimum Wage: If the employee's state has a higher minimum wage than the federal or your home state’s rate, you must pay the higher amount.
Overtime Thresholds: Some states (like California) have daily overtime rules (pay after 8 hours in a day) in addition to the standard 40-hour work week.
Pay Frequency: Ensure your payroll schedule matches state requirements. Some states mandate weekly or bi-weekly pay, while others allow monthly payments.
Final Pay Rules: Be aware of "immediate pay" laws upon termination. Some jurisdictions require final checks to be issued on the employee's last day.
3. Secure Workers' Compensation and Disability Insurance
Workers' compensation insurance is mandatory in almost every state, and it must cover the employee in the state where they work.
Add the New State to Your Policy: Contact your insurance carrier to add the employee's state to your coverage.
State-Mandated Disability: A handful of states (such as New York and New Jersey) require employers to provide short-term disability insurance and paid family leave coverage. Ensure you are deducting the correct amounts and paying into these state funds.
4. Review Leave and Time-Off Mandates
Paid leave is one of the most rapidly changing areas of employment law. Don't assume your standard company policy covers everything.
Paid Sick Leave: Many states and even specific cities have passed laws requiring a minimum number of paid sick hours based on time worked.
Paid Family and Medical Leave (PFML): Check if the employee’s state has a mandatory PFML program that requires employer contributions.
Voting and Jury Duty: Some states require paid time off for voting or serving on a jury.
5. Modernize Your Labor Law Postings
Federal and state laws require employers to display posters explaining worker rights. For remote employees, a poster in your head office breakroom isn't enough.
Electronic Postings: Provide digital copies of all required state and federal posters via your company intranet, employee portal, or via email.
Acknowledgement of Receipt: It is a best practice to have remote employees sign a digital acknowledgement confirming they have received and have access to these legal notices.
6. Business Expense Reimbursement
In some jurisdictions, employers are legally required to reimburse employees for "necessary" business expenses incurred while working from home.
Hardware and Utilities: This may include a portion of internet bills, phone usage, and office equipment.
State-Specific Rules: States like California, Illinois, and Massachusetts have strict requirements regarding what constitutes a reimbursable expense. Establish a clear policy to avoid "wage theft" claims related to unreimbursed costs.
7. Update Your Employee Handbook
A one-size-fits-all handbook rarely works for a multi-state remote team. You may need to create "state-specific addendums" to your main policy.
Work Schedules and Breaks: Clearly define expectations for meal and rest breaks, especially for non-exempt (hourly) employees.
At-Will Employment Disclaimers: Ensure your handbook reflects the specific legal language required in the employee’s state to maintain at-will status.
Security and Privacy: Include policies on data protection, VPN usage, and how company equipment should be handled in a home environment.
Conclusion: Compliance is a Competitive Advantage
Hiring across state lines is a major milestone for any growing company. While the legal hurdles may seem high, staying compliant protects your business from audits and builds a foundation of trust with your team. By taking a proactive approach to state labor laws, you ensure that your remote work strategy is sustainable for the long haul.