As remote and hybrid work arrangements continue to expand, many employers are finding opportunities to recruit talent beyond the state where their principal office is located. While hiring employees in other states can provide access to a broader workforce, it also creates additional legal and administrative obligations. Before onboarding an out-of-state employee, employers should evaluate several important compliance considerations, including but not limited to:
1. Registering to Do Business and Establishing State Accounts and Registrations
Simply having an employee perform work in another state can create sufficient nexus to trigger registration and tax obligations. Employers need to register with the applicable Secretary of State as a foreign entity authorized to conduct business in that state. Employers should also establish accounts with the state's unemployment insurance agency and department of revenue to facilitate payroll tax withholding and reporting.
Most states require that any employer with employees working in the state either carry a workers' compensation policy covering those employees or qualify as an authorized self-insurer within that state.
There may be other state filings or registrations that are needed depending on state requirements or the type of business, such as professional or operating licenses, local business permits or franchise tax filings.
2. Understanding State Wage and Hour Laws
Many employers assume that federal wage and hour laws provide a uniform set of rules. However, state laws often impose additional requirements for wages that apply to employees working within their borders.
Employers should review state-specific laws including minimum wage, commissions, overtime, meal and rest breaks, pay frequency, wage payment methods, wage deductions, and final paycheck requirements. For example, in some states, overtime rules are more employee-friendly than federal law and may require daily overtime payments or different exemption standards.
3. Updating Employee Handbooks, Policies and Agreements
An employee handbook drafted for a company's home state may not adequately address requirements applicable in other jurisdictions. Many states mandate specific leave rights, notices, and workplace policies that employers must provide to employees. Examples may include paid leave for all workers, including part-time employees, paid sick leave, family and medical leave programs, paid family leave insurance, pregnancy accommodations, domestic violence leave, voting leave, and military leave protections. Some states also require employers to maintain written policies addressing harassment prevention, workplace accommodations, lactation rights, or employee privacy protections.
Since state laws vary with respect to wage and hour issues including but not limited to overtime, payout of paid time off at termination, meals and rest breaks, wage deductions and assignments, properly addressing these matters in the employee handbook can help employees understand expectations and assist employers in complying with and enforcing the law.
Employers should also be aware of state laws affecting restrictive covenants, such as non-compete, non-solicitation, and confidentiality agreements. For example, several states have significantly limited or prohibited non-compete agreements for many categories of workers. Agreements that are enforceable in one state may be unenforceable in another, making it important to evaluate employment agreements based on the employee's work location.
Employers should review their handbook, employment policies and employment agreements whenever they hire employees in a new state. Some employers opt for state-specific addendums to supplement base policies and agreements while others choose to revise company-wide policies and agreements to ensure compliance across multiple jurisdictions.
Planning Ahead Reduces Risk
Navigating the legal and administrative requirements associated with a multistate workforce can be challenging, particularly as employment laws continue to evolve. Employers considering hiring employees in new jurisdictions should consult with experienced employment counsel to identify potential compliance issues before they become costly problems.
Our experienced team of employment law attorneys can help ensure your policies, agreements, payroll practices, and registration requirements are aligned with applicable state and federal laws, allowing your business to grow with confidence. For more information, contact Shannon Middleton (shannon.middleton@gutweinlaw.com) or Tessa Doyle (tessa.doyle@gutweinlaw.com) at 765.423.700.