Risk

Demystifying Multi-State Compliance for Remote and Hybrid Workers

Hannah Beppel Hannah Beppel

Young smiling businesswoman on coffee break in home office

As organizations look to expand their talent pools and recruit the best talent from all over, it's no surprise that recruiting across geographical boundaries is more common than ever before. Workforces are becoming more spread out — made up of more remote and hybrid workers — which leaves HR leaders and business owners scrambling to keep up with varying state laws.

To avoid legal pitfalls, it's imperative for HR leaders and business owners to have the resources they need so that they can ensure compliance for their remote and hybrid workforces. For an in-depth dive into multi-state compliance, download the guidebook: Navigating multi-state compliance requirements for organizations with a remote and hybrid workforce.

This article will address some of the most common mistakes and frequently asked questions that come up for HR leaders and business owners managing a remote and hybrid workforce.

Why is it important to know where my remote employees live and work?

It is important to know where your remote employees live and work because the laws in their area may affect them and you as their employer. If an employee works remotely in another state, the employee and the organization can be legally subject to the laws of that state. This could include state income tax, unemployment insurance, pay transparency laws, worker's compensation, mandated employee benefits, privacy laws and more.

Pete Isberg, ADP Vice President, Government Affairs encourages leaders to stay diligent as new state laws are proposed and passed. "When organizations don't comply with the state laws where remote workers live, it can expose the organization and employee to improper tax withholding and other non-compliance liability."

What types of laws should employers consider that may apply to remote employees?

The types of laws affecting employers and employees differ by state, so it's important to research and consider the following types of laws that may affect you as an employer with remote workers in other states:

  • Tax withholdings
  • Unemployment insurance premiums
  • Labor laws
  • Leave laws
  • Pay transparency and reporting laws
  • Anti-discrimination laws
  • Worker's compensation laws
  • Privacy laws

Some of these categories may have several types of acts or laws passed by states that require action on the part of the employer. Not every one of these laws may be applicable, but the burden is on the employer to learn about and determine which laws may apply to them and their employees and take any actions necessary to comply with those laws.

What are the best practices for getting employees to share their location?

The best practices for getting employees to share their location are (1) making it easy for employees to report relocation, and (2) being honest about the potential consequences if their location is coded incorrectly.

Making it easy for your employees to report their location is one of the best ways to keep their locations accurate in your system of record. The simple addition of an "update address" button on the employee portal or a quarterly notification requesting address confirmation can help ensure you have the correct physical location of your remote employees.

Being honest about the consequences if employees' locations on record are incorrect is another way to help motivate employees to share their location. Isberg suggests discussing the tax and other non-compliance liabilities with employees. "Explain the possibility of income tax refund delays due to the need to amend withholding returns and wage reports. This shows employees that knowing their location is not about micromanagement, it's about compliance with the law."

It's also a great idea to have managers remind remote and hybrid employees of the importance of having an accurate physical location.

What if an employee forgets to tell you they moved to a new state?

If your employee forgets to tell you they moved to a new state, here are the steps you should take:

  1. Educate them on the importance of having their accurate location.
  2. Find out the date they relocated.
  3. Correct the location set-up moving forward so future taxes are accurate.
  4. If needed, work with your payroll provider and accountant to correct any wages/withholding reported to the wrong state.
  5. If necessary once corrections are made, work with your payroll provider to produce a corrected Form W-2 and/or wage statements.
  6. Register your organization in that state if not already registered (see the guidebook for how to register your organization in a new state).
  7. Review any relevant licensing requirements (depending on occupation none may be needed).

If the employee's relocation was to a state in which your organization is not already registered, you may be required to register your organization within that state. (See the guidebook on how to register in a new state.)

The wrap-up

As HR leaders and business owners lean into sourcing talent for their organizations from a talent pool that crosses state borders, workforces will continue to grow and become more dispersed geographically.

Learning the right questions to ask and where to look for resources is a crucial part of handling compliance for a multi-state workforce.

Download the guidebook today: Navigating multi-state compliance requirements for organizations with a remote and hybrid workforce.

Dive deeper

Implications of "Work from Anywhere" - When Remote Workers Cross State Lines

Remote and Hybrid Workers: State Tax Incentives and Compliance Challenges