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6 Things to Consider with Out-of-State Remote Employees

Did remote work due to the coronavirus pandemic create some long-term legal and tax implications for your agency? Here are six requirements you should consider.
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6 things to consider with out-of-state remote employees

Among the many changes to business as usual during the coronavirus pandemic, the reality of more employees working from home was one of the most impactful.

While numerous solutions were quickly implemented to react to the pandemic, employees and employers are now realizing the long-term implications of remote work options. As well as having to review and update normal employment procedures, such as performance reviews and paid time off usage due to the new work-from-home reality, employers who have employees who are temporarily working in a different state have even more implications to consider.

Whether an employee usually commutes across state lines to come into the office or if they have had to relocate due to COVID-19 or financial considerations, employers need to follow employment laws in those states in addition to the state in which the company is located.

Nearly half of remote employees (47%) are unaware that laws vary by state, according to the American Institute of CPAs, and 70% did not know that working remotely may impact their tax filings.

In normal circumstances, an employer who hires an employee living and working in a different state has plenty of time to set up state-specific workers compensation and unemployment insurance, file and pay state taxes, and learn the different employment laws. But with the rapid nature of decisions made during the pandemic, some employers and employees are now realizing they have been subject to different laws this entire time.

Some states are making temporary exemptions for employees working remotely due to COVID-19 circumstances while others are requiring proper taxes to be paid, existing employment laws to be followed, and workers comp and unemployment to be maintained. Depending on where you and your employers are located, you may need to consider the following laws in the state where your employees are working to stay compliant:

1) Employment laws. Every employer must follow the applicable employment laws of the state in which the employee works, even if they differ from the ones where the business is located.

To further confuse what is applicable, some state laws apply to all employees regardless of the number of employees in the state, while others require a minimum number of employees working in that state to qualify. Here are some of the most common laws which differ state-to-state:

  • Protected groups. While some groups are protected in every state because of federal law, other groups may be protected in a city, county or state where an employee works while not being protected where the business is located. Certain employees may have more protections and available courses of action in their remote work location, which may increase your liability exposure.
  • Paid sick leave. This has become common in many states, counties and cities. Many of these laws apply to any employee working in that location, regardless of whether the business is located there. Having to offer leave to certain employees may impact overall paid time-off policies.
  • Paid family leave. This is currently or will soon be offered in nine states: CA, CO, CT, MA, NJ, NY, OR, RI, WA and DC. While many of these only cover employees of large businesses, some cover all employees and will apply to employees who may be working remotely in that state.
  • Minimum wage. State minimum varies widely, some being much higher than the federal $7.25 per hour. State law also varies regarding tip credit and minimum salary thresholds for exemptions.
  • Overtime. While most states follow the federal time and a half for all hours worked over 40 hours in a workweek, some (including AK, CA, CO and NV) have more stringent overtime requirements.
  • Posters and notices. While some states do not require postings in an employee's house if that is their workplace, others will need to be provided to employees in compliance with state law. Federal posters will also need to be made available to employees who are working remotely.

2) Tax nexus creation. In tax law, a “tax nexus" refers to a company's presence in a state entitling the state to charge taxes. Typically, a business is considered active in a state if they have a physical location, resident employees working in the state, property in the state, and employees regularly soliciting business there. Businesses meeting any of these criteria may be required to pay applicable taxes to that state.

3) Payroll tax requirements. Normally, taxes must be paid in any state in which the employee performs work and is physically present in the state. Usually, they would complete the state's equivalent of a W-4 and state taxes are withheld from each paycheck.

However, various exceptions may impact this. Some states, such as Pennsylvania and New Jersey, allow withholding tax reciprocity with neighboring states while others, such as Connecticut for employees working in New York City, offer an off-setting tax credit. Other states, such as Arizona, allow employees to work a limited number of days before having to pay taxes while some, such as New York, require employees to pay taxes if they work even one day in the state.

The stay-at-home mandates issued throughout the pandemic add further complexities since employees and employers did not willingly create this work-across-state-lines situation.

4) Unemployment insurance. In conjunction with other payroll taxes, employers need to have unemployment accounts established in each state in which an employee works so they can file properly if needed.

5) Workers comp. All states have their own workers comp laws and systems. Businesses usually need to establish workers comp insurance accounts in each state in which they have employees working. If an employee is injured in a work-related accident while working from home, this will still be your responsibility and the state will require proper coverage.

6) Work location permitting. Some local agencies require certain businesses to have permits for all locations where work is being done. If employees are regularly performing work from home, they may need to obtain business permits for compliance.

Given the wide variety of implications created by remote workers, Affinity HR recommends consulting with your HR and accounting departments and advisors to ensure compliance. We also recommend checking with the zoning departments in the city and county where your employees are working to verify you are meeting all zoning and licensing requirements.

Paige McAllister is vice president, HR compliance, Affinity HR Group, Inc. Affinity HR is the endorsed HR partner of Big “I" Hires, the Independent Insurance Agents of Virginia, Big I New York, Big I New Jersey and Big I Connecticut.

Reach out to Affinity HR Group via email or 877-660-6400 with your HR needs.

Tuesday, September 27, 2022
Agency Operations & Best Practices