In the wake of the COVID-19 pandemic, remote work has become a common reality for many companies. While the flexibility gave both employers and employees the ability to safely continue working and presented employers with a wider talent pool to hire from, remote work can pose difficulties that may not have been taken into account.
When an employee works from home in a different state, their rights as an employee are usually determined by the state the work is being performed in, and not where the company is located. From an employee’s ability to review their personnel record to when they receive their final paycheck.
In this article, we explore what employers need to know about how state laws affect remote employees
Can An Employee Work Remotely from Another State?
With the rise of remote work, many employees may be asking, "Can I work remotely from another state?"
This flexibility to live and work from anywhere offers numerous benefits but also comes with its own set of considerations and complexities. Here’s a closer look at what working remotely from another state entails:
Is It Allowed?
Yes, working remotely from another state is generally allowed, but it depends on the employer's policies and the nature of the job. While some employers have embraced this practice, others may have specific restrictions due to regulatory, tax, or operational concerns. It's important for employees to communicate their intentions with their employers and get the necessary approvals before making such a move.
Is It Common?
The trend of remote work across state lines has become increasingly common, especially since the COVID-19 pandemic. Many companies have adopted flexible working arrangements to attract and retain talent. However, the prevalence varies by industry, company size, and the specific roles within organizations.
Best Practices for Working Remotely from Another State
To successfully navigate working remotely from another state, here are some best practices drawn from industry insights:
1. Know Your Status as a Contractor or Employee: Understand whether you are classified as an independent contractor or an employee. This classification affects your tax obligations and the benefits you're entitled to. Employees typically have taxes withheld by their employers, while contractors manage their own tax payments.
2. Familiarize Yourself with Local Tax Laws: An important question to ask yourself is, "if I work remotely where do I pay taxes?". Each state has its own set of tax regulations, and working in a different state from where your employer is based can lead to complex tax situations. It's crucial to understand the tax implications in both your home state and the state where your employer is located. Consulting with a tax professional can provide clarity and ensure compliance.
3. Ask Your Employer to Hire You Through an Employer of Record (EOR): An EOR is a third-party organization that takes on the legal responsibilities of employing staff, including payroll, taxes, and compliance with local labor laws. This arrangement can simplify the process for both the employee and employer, ensuring that all legal and tax requirements are met.
What Does the Current Landscape Look Like?
The current remote work landscape is evolving rapidly. Many companies have adopted hybrid models, allowing employees to work from various locations, including different states. This shift has prompted changes in corporate policies, tax legislation, and employee expectations. Employers are increasingly recognizing the need for flexible work arrangements to remain competitive and attract top talent.
Considerations for Employers with Remote Employees in Different States
When allowing employees to work remotely from another state, employers should consider several key factors to ensure compliance and smooth operations:
1. Tax Implications: Employers must be aware of the tax obligations in both the home state and the remote state. This includes withholding taxes, unemployment insurance, and state income tax requirements.
2. Labor Laws: Different states have varying labor laws regarding minimum wage, overtime, and employee benefits. Ensuring compliance with these laws is crucial to avoid legal issues.
3. Insurance and Benefits: Providing health insurance, workers' compensation, and other benefits can become complicated when employees are in different states. Employers should review and adjust their benefits packages accordingly.
4. Workplace Policies: Clear policies regarding remote work, including communication expectations, data security, and performance management, should be established to maintain productivity and employee engagement.
By considering these factors and implementing best practices, employers can effectively manage remote employees working from different states, fostering a productive and compliant remote work environment.
Where To File Taxes
Navigating the complexities of filing taxes when working remotely from another state can be daunting for both employers and employees. Understanding the rules and obligations can help prevent unexpected tax liabilities and ensure compliance with state regulations.
Tax Situation for Employers
Employers must be mindful of the tax obligations in the states where their remote employees reside. This includes:
- Withholding State Income Taxes: Employers are required to withhold state income taxes based on the employee's work location. If an employee works in a different state from the employer's primary location, the employer needs to withhold taxes for the state where the employee resides.
- Unemployment Insurance Taxes: Employers must pay state unemployment insurance taxes for each state where they have employees. This ensures that employees are covered under the respective state's unemployment insurance program.
- State Nexus: Having employees in different states may create a tax nexus, which could subject the employer to additional state taxes and filings. This includes corporate income taxes, sales taxes, and other state-specific taxes.
Tax Situation for Employees
Employees working remotely from a different state must also consider their tax obligations:
- State Income Tax: What state are you taxed in if you work remotely? Employees must file state income tax returns in the state where they physically work. This means if they work in a state different from their employer’s location, they need to comply with the tax laws of their work state.
- Double Taxation: Some states have reciprocal agreements that prevent double taxation. If no such agreement exists, employees might need to file tax returns in both their resident state and the state where they work. They can often claim a credit for taxes paid to another state to avoid double taxation.
Threshold for Tax Filing
Most states have a threshold for the number of days an individual must work within the state before they are required to file taxes there. For instance, states like New York have a 183-day rule, where individuals must file state taxes if they work there for more than half the year. Other states might have different thresholds, which can range from a single day to several months.
Understanding state tax regulations involves awareness of the specific criteria in each state regarding the number of workdays that trigger tax liabilities.
Example: Tax Filing in Florida
Florida presents a unique case in the U.S. tax landscape:
- No State Income Tax: Florida does not levy a state income tax on individuals, which means employees working in Florida do not need to file a state income tax return. This can be advantageous for remote workers residing in Florida.
- Employer Obligations: Even though Florida doesn't have a state income tax, employers with employees in Florida must still comply with federal tax obligations, including withholding federal income taxes and paying federal unemployment taxes. Additionally, they must adhere to any relevant local business taxes and employment regulations.
State-Specific Leave
Employers must navigate a complex landscape of state-specific leave laws, which go beyond the federal Family and Medical Leave Act (FMLA).
For example, California's Family Rights Act (CFRA) and Paid Family Leave (PFL) offer broader coverage and wage replacement benefits for caregiving and bonding with a new child. Similarly, New York’s Paid Family Leave (PFL) provides up to 12 weeks of paid leave for family care and military-related needs, while Massachusetts’ Paid Family and Medical Leave (PFML) offers up to 26 weeks of combined family and medical leave, covering a wide range of family relationships and health conditions.
Beyond family and medical leave, states also have specific regulations for parental, pregnancy, sick, and other types of leave. Washington State’s PFML allows additional leave for pregnancy complications, while Oregon’s Family Leave Act (OFLA) covers more employers than the FMLA and provides leave for pregnancy-related disability.
States like Arizona and Washington, D.C. mandate paid sick leave with accrual rates based on employer size, and California offers protections and unpaid leave for military training or duty. Illinois provides unpaid leave for employees serving as election judges, demonstrating the variety of civic duty leave laws across states.
Compliance and Best Practices for Employers for State-Specific Laws
To effectively manage state-specific leave laws, employers should adopt several best practices:
1. Stay Informed: Regularly update your knowledge of state leave laws where your employees reside. Laws can change, and staying informed ensures compliance.
2. Implement Clear Policies: Develop and communicate clear leave policies that comply with state laws. Include details on eligibility, leave duration, and the process for requesting leave.
3. Use HR Software: Consider using human resources management software to track leave accruals, usage, and compliance with state-specific requirements.
4. Train Managers: Ensure that managers and HR personnel are trained on state-specific leave laws and company policies to handle leave requests properly and consistently.
5. Consult Legal Experts: When in doubt, consult with legal experts specializing in employment law to ensure your policies and practices comply with all applicable state laws.
By understanding and adhering to state-specific leave laws, employers can better support their remote workforce, avoid legal pitfalls, and foster a positive work environment. This approach not only ensures compliance but also enhances employee satisfaction and retention.
Required Paid Sick Leave and PTO
Understanding how state laws impact paid leave and paid time off (PTO) is crucial for employers. Each state has unique regulations governing these benefits, and compliance is essential to avoid legal issues and ensure employee satisfaction.
Examples of how paid sick leave and paid time off (PTO) regulations differ by state:
- Paid Sick Leave: States like New York, California, and Arizona mandate a minimum amount of paid sick leave each year. For instance, New York requires employers to provide at least five days of paid sick leave annually, which can be used for personal or family illness and preventive care.
- Paid Time Off (PTO): PTO encompasses sick leave, vacation days, and personal days. While some states regulate PTO, others leave it to the employer’s discretion. In California, accrued PTO (including vacation) cannot be forfeited and must be paid out upon termination.
By understanding and adhering to state laws regarding paid leave and PTO, employers can better support their remote workforce, maintain legal compliance, and foster a positive and productive work environment.
Here are some topics to be aware of if you have employees working remotely in other states:
Workers’ Compensation
Workers’ compensation is a type of insurance that provides benefits to employees who get hurt or sick because of their job. Even when employees work remotely, they are still covered by workers’ compensation if they are injured while performing work-related tasks. For example, if an employee trips over a work-related file in their home office and gets hurt, they can file a workers’ compensation claim.
Each state has its own workers’ compensation laws, and it’s important for employers to be familiar with the rules in the states where their remote employees live. Prompt reporting of work-related injuries is crucial. Employees should know the procedure for reporting injuries and the importance of doing so quickly. This helps ensure they receive the necessary benefits and that you comply with state laws.
Where to File Unemployment
When an employee loses their job, they may be eligible for unemployment benefits, which provide financial support while they look for new work. For remote workers, a question that could arise is, "if I work remotely where do I file for unemployment?". Determining where to file for unemployment can be tricky. Generally, employees should file for unemployment benefits in the state where they physically worked the most days.
If an employee lives in one state but works for a company based in another, they usually file in their home state. However, if they worked in multiple states, it might depend on specific state agreements. Employers should guide their remote workers on where to file for unemployment to ensure they receive their benefits promptly. Clear communication about this process can help avoid confusion and delays.
Access to Records
Some states require employees have the right to access certain work records, such as their personnel files. These records might include performance reviews, salary history, and disciplinary actions. Many states, like California and Massachusetts, have specific laws that allow employees to view and obtain copies of their personnel records. However, this is not a requirement in all states, such as Florida.
Employers should be prepared to provide access to these records upon request. It’s important to understand the specific requirements in each state, such as how quickly you must respond to a request. Ensuring that your remote employees know their rights to access these records can help maintain transparency and trust within your company.
Termination Pay
When an employee leaves a job, whether they quit or are fired, they are always entitled to their final paycheck. The timing and content of this final paycheck can vary by state. For example, in California, if an employee is fired, you must give them their final paycheck on their last day. If they quit, you have 72 hours to provide it.
Some states also require employers to pay out unused vacation time in the final paycheck. Knowing these rules helps ensure compliance and avoid disputes during employee separations. Providing clear information to employees about what they will receive and when can help make the termination process smoother and more transparent.
Payroll
Payroll is how you pay your employees for their work. States have different laws about how often you must pay employees and what information must be included on their paychecks. For example, New York requires that manual workers be paid weekly, while administrative workers can be paid bi-weekly or semi-monthly.
Pay stubs must include details like the number of hours worked, hourly rates, and any deductions. This ensures employees are paid accurately and transparently. Using reliable payroll software can help manage these requirements and ensure compliance with state laws. Clear communication about payroll policies can also help avoid misunderstandings and ensure employees are paid correctly and on time.
Because of the variety of employee rights around the country, it’s always a good idea to check the local laws if you are planning to hire someone to work remote from another state or even major city. For tax-related assistance, consulting with a tax professional can help save you time and money and ensure you stay in compliance.
FrankCrum can help your company with preparing to hire in other states and answer your compliance questions. Please contact us -- we're here to help!
