The Hidden Paperwork Of Hiring A Remote Employee In Another State
Hiring someone who works from a different state brings new tax accounts, insurance and employment rules. What changes, what to check and how to stay on top of it.
Hiring the best person regardless of location is one of the real advantages of remote work. The catch is that employment law mostly follows the employee, not the company. The day someone starts working from a new state, the company usually picks up obligations in that state.
Founders often discover this months later, when a state agency sends a notice about unpaid unemployment insurance contributions or a tax return that was never filed. The fixes are not complicated. They just have to happen before the first payroll, not after.
Register in the new state
In most cases, an employee working in a state makes the company an employer in that state. That typically means opening a state withholding account if the state has an income tax, and a state unemployment insurance account. Some cities and counties levy their own payroll or income taxes. Your payroll provider can help, but the company remains responsible for making sure accounts exist and filings go out.
Workers' compensation coverage also has to apply in the employee's state. Some policies extend automatically to other states, and some do not. A few states require coverage to be purchased through a state fund. Confirm with your insurer before the start date.
Check corporate and tax consequences
An employee in a new state can create what tax professionals call nexus, a connection strong enough for that state to tax the company. Depending on the state and your business, that can affect state income or franchise tax filings, and in some cases sales tax obligations. The company may also need to register to do business in that state as a foreign corporation, which means a filing with the secretary of state and a registered agent there.
Not every remote hire triggers every obligation, and the rules differ widely. This is a question for your accountant before you hire, not after.
Apply the employee's state employment laws
Wage and hour laws, paid sick leave, family leave, final pay timing, pay transparency, expense reimbursement and noncompete restrictions all vary by state, and some by city. The employee is generally protected by the laws of the place where they work.
This creates practical questions. If one state requires reimbursement of necessary business expenses for remote workers, you need a policy for that. If another requires paid sick leave that accrues at a set rate, your time-off policy has to meet it. If a state restricts noncompete agreements, the template you use elsewhere may not be enforceable there.
Pay transparency deserves its own note. A growing number of states and cities require salary ranges in job postings, and some apply the rule when the role could be filled by someone living there, even if the company is based elsewhere. If you advertise a role as open to remote candidates, check which posting rules apply before you publish it.
Many companies handle this by building a baseline policy that meets the most demanding requirements across all the states where they have employees, then adding state-specific addenda where needed. It is simpler to administer than tracking a different rule for every person.
Decide where people may work
The most useful policy many remote companies adopt is a list of approved work locations. Employees can work from any state on the list. Moving to a new state, or working from one for an extended period, needs approval in advance. That gives the company time to register and update its policies before the obligations begin.
The same applies to international work. An employee working from another country for long periods can create tax, immigration and employment law exposure there. Many companies set clear limits on working abroad and require approval for anything beyond short trips.
Hybrid policies raise a smaller version of the same issue. If employees are expected in an office on certain days, write down which days, what happens when someone moves too far away to commute, and whether the company covers travel for people who live outside commuting distance.
Some companies use an employer of record or a professional employer organization to hire in states or countries where they have few people. These providers handle registration and compliance for a fee. They do not remove every responsibility, so read the agreement carefully.
What to do before your next remote hire
Write down every state and country where an employee currently works, including people who moved after they were hired. Confirm withholding, unemployment insurance and workers' compensation are in place in each one. Ask your accountant about nexus and foreign qualification. Update your handbook so its policies meet each state's requirements. Then publish an approved-locations policy and require advance approval for moves, so the next surprise comes before the paperwork, not after.
This is general information, not legal advice. Speak to a qualified attorney in your jurisdiction before acting on any of it.
