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Hiring out-of-state employees can help businesses access a larger talent pool, support remote work strategies and expand operations into new markets. However, many employers do not realize that hiring employees in another state creates new legal, tax and compliance obligations.
If a company has a worker in another state, even one working remotely, it must adhere to that state’s employment laws. Each state’s requirements differ, and to further complicate matters, the city and county where the out-of-state employee works may have additional rules the company must follow.
Ignoring these regulations can lead to significant legal risks and fines for non-compliance – but by adhering to best practices for hiring across multiple U.S. states, employers can help ensure they’re avoiding costly mistakes.
Here are the top five compliance challenges for out-of-state hires:
The first step a company must take when beginning operations in a new state is to register with the relevant state tax agency and workforce commission.
Employers hiring out-of-state employees may need to register for state income tax withholding, unemployment insurance and possibly even state business taxes.
Each state has its own income tax withholding rules, employer registration requirements, unemployment insurance contributions and filing deadlines.
Because of these complexities, smaller businesses often find it makes sense to rely on a trusted outsourced company like Axcet HR Solutions to manage multi-state payroll administration.
One of the biggest challenges of hiring out-of-state employees is keeping up with varying wage and hour laws
Consider, as just one example, that $7.25 is the lowest minimum wage in the country, while $17.95 is the highest.
States, counties and cities also may have their own regulations for:
For instance, some states set stricter standards for classifying employees as exempt from overtime, which can affect how roles are organized and paid.
One of the biggest challenges of hiring out-of-state employees is keeping up with varying wage and hour laws.
As of 2026, 16 states, Washington, D.C., and multiple counties and cities across the country have enacted laws that require some form of pay disclosure. Ten other states have introduced pay transparency laws.
That means a job posting that is compliant in one jurisdiction may not conform to the requirements in another. For employers expanding into new states, this patchwork of regulations creates recruiting compliance challenges.
Pay transparency laws generally compel employers to disclose salary information to job applicants. While specific requirements vary, many laws require employers to:
Businesses hiring out-of-state employees should also review workers' compensation requirements before onboarding workers in a new state.
Your company’s existing workers’ compensation policy may not be sufficient or valid in another state. Workers’ compensation is governed at the state level, with almost every state requiring insurance to cover employees’ work-related injuries or illnesses, even if those employees work remotely.
These laws vary by state and coverage is often determined based on the number of employees, business type and specific worker roles. Failure to carry appropriate workers’ compensation coverage can lead to severe penalties, including fines and potential liability for employee injuries.
Companies may need to develop jurisdiction-specific handbooks for employees who work in other states.
Policies that commonly differ from state to state include:
Hiring out-of-state employees is more than a recruiting decision. Every new state introduces unique tax, payroll, wage and employment law requirements that employers must understand before expanding their workforce.
Before hiring out-of-state workers, schedule a consultation with one of our HR experts. Axcet’s HR pros stay current on all states’ employment laws. They can help your company navigate new compliance challenges with out-of-state hires and ensure a smooth, compliant process using proven best practices for hiring across multiple U.S. states.
Written by
Jennifer Barnes, SPHR is a seasoned HR business professional and program manager with a strong track record in employee relations, HR strategy, and compliance. Currently serving as a Human Resources Consultant at Axcet HR Solutions, Jennifer brings over a decade of experience leading HR initiatives that support organizational growth and operational excellence.
Prior to joining Axcet, she held strategic roles at companies like Chewy and Amazon, where she specialized in employee investigations, coaching for leadership teams, and KPI-driven program management. Her cross-industry HR expertise is further bolstered by a portfolio of respected credentials, including the Senior Professional in Human Resources (SPHR) and a Certificate in Data Analytics from HRCI. Jennifer is also a Belbin Team Roles Certified Practitioner, reflecting her passion for leadership development and effective team dynamics.
Beyond her corporate achievements, Jennifer has dedicated years to animal welfare causes, volunteering and fostering through the Lawrence Humane Society and previously with the Cayo Animal Welfare Society. With a commitment to strategic HR planning, data-driven decision-making, and compassionate service, Jennifer continues to make a meaningful impact in both her professional and community roles.
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