Question: We are going to hire remote employees in several different states. What must we consider from a tax and employment law perspective?
Answer: Generally, employers must comply with the labor law of the state in which the employee will be regularly performing services and where wages are paid to that employee. There is a common rule of thumb called “boots on the ground,” which implies the regulations would apply to the state where the employee is physically working, including wage and labor regulations for hours worked and overtime, as well as general fair employment practices, termination/final pay rules, and recordkeeping. From an employee perspective, income tax for the state where the employee works (as well as lives) falls under each individual state as well. Note too, that the state where the employee works is generally where the employer should be paying unemployment insurance tax and workers’ compensation coverage.
We recommend additional research with tax and legal experts when expanding into a new state, even with remote workers. The following information offers more details about unemployment taxes and new hire reporting.
Unemployment Taxes (UI)
New Hire Reporting
- Abide by the new-hire reporting program of each state and report newly hired employees to the various states in which employees are working.
- Select one state where employees are working and report all new hires to that state’s designated new-hire reporting office.
When notifying the department, the multistate employer must include all generally required reporting information along with the following:
- The specific state selected for reporting purposes.
- Other states in which the company has employees.
- A corporate contact person.
- A list of the names, Employer Identification Numbers (EINs), and the states where the employees are located if the company is reporting new hires on behalf of subsidiaries operating under different names and EINs.