Out of State Employees: What Employers Need to Think About
January 7, 2022
With the rise of remote work and changes to cost-of-living expenses and local wage challenges across the country, many employers are facing the prospect of their employees moving out of state while retaining their jobs.
We’ve said before that employers should be ready to support their employees to build trust and retain quality people—whether it’s by offering competitive wages or by providing understanding around the employee’s health—and supporting remote employees certainly falls under that category. But because different states often have different labor laws (not to mention time zone differences, which can make logistics challenging), the prospect of an employee moving out of state but staying on board with your organization can be difficult to navigate.
Our HR folks at Allevity have put together a list of the key things to focus on when an employee moves out of state:
Wage and Hour Law or Leave Laws
As you might expect, the greatest concerns around remote employees who work out of state are local law and workers’ compensation insurance. Let’s start with wage and hour law and leave law. Generally speaking, remote employees are subject to their local laws (that is, the city and state where they physically are located and where they do their work). There are some exceptions for employees who are temporarily out of state, but mostly it’s all about the local laws where the employee is living and working. That means that if you are a business in California and you have an employee working remotely from Phoenix after moving to be closer to their parents, you now must familiarize yourself with the labor laws in both the city of Phoenix and the state of Arizona, and you must comply with them. For example, as Ogletree Deakins Law points out, a private-sector Idaho employee working in Seattle would be entitled to far more paid sick leave–up to about six weeks of full-time work–because of the differences in state and local law. There are also minimum wage, overtime, and rest and meal break benefits to consider.
Employee Handbook Addendum
As always, the rules your organization has toward remote work should be well-documented, compliant, and readily available for your employees. It is well worth your time to evaluate city or state labor and wage laws that your company simply can’t support. How you determine that is up to you. The more supportive approach would obviously be to take each employee’s remote situation on a case-by-case basis, applying their city’s labor and wage laws and maintaining compliance. Alternately, your handbook might delineate a select number of qualified cities from which you allow remote work, for the sake of simplifying the policy. Regardless of what you do, the point is that you must comply with local law, and both you and your employees must understand the remote policy.
It is recommended that all remote employees should sign a special policy that pertains to remote work. This policy would account for wage and labor issues such as timekeeping, since the employee does not physically punch a clock or sign a timesheet on-site and is more or less self-supervised.
Benefits Ramifications
Many out-of-state employees’ moves may mean they no longer are eligible for their employers’ benefits plans. The employer should notify its insurance carrier immediately to find out if their plans will be available in the employee’s new state. Ideally, the employer and insurer will be on the same page about eligible states beforehand, as part of an overall remote employee policy for out-of-state workers. Similarly, workers’ compensation insurance coverage must be extended to coverage in the new state as well. Failure to have workers’ comp coverage where the employee’s work is “localized” could result in criminal and civil penalties. There are, in some instances, reciprocity agreements between states that allow employees to bring the workers’ comp insurance from the employer’s state, but it varies state-to-state and can be complicated.
Payroll and Tax
Your organization must also be registered to do business in your employee’s state of address, especially to set up payroll tax accounts, and there is a fee for this. Your company cannot run payroll in any state without first registering. Likewise, the employee’s tax settings must be adjusted according to their new state’s guidelines and laws, and you, as the employer, must make sure to obtain the withholding form pertaining to that state.
As you can see, having a remote employee working out of state might have plenty of advantages for your employee, but there are some extra steps you must pay attention to. If you have more questions, we are here to help–just reach out to us and we’ll connect for a chat.
January 7, 2022
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