Managing Compliance with Employees in Multiple States

Having employees in multiple states, whether through remote work, satellite offices, or travel, creates a web of compliance obligations. Each state has its own employment laws, and employers must navigate these differences carefully. The consequences of non-compliance range from fines and penalties to class action litigation.

Employment Law Variations

State employment laws vary significantly in virtually every area:

• Minimum wage: Ranges from the federal minimum of $7.25 per hour (in states that follow the federal rate) to over $16.00 per hour in some states and cities
• Overtime: Some states require daily overtime (California, Alaska, Nevada) in addition to the federal weekly overtime requirement
• Meal and rest breaks: Requirements vary widely, with some states mandating specific break durations and timing
• Leave laws: Paid sick leave, family leave, voting leave, and jury duty leave requirements differ by state
• Pay transparency: A growing number of states require salary ranges in job postings
• Non-compete agreements: Enforceability and restrictions vary dramatically by state

Registration and Tax Obligations

When you have employees working in a new state:

• Register as an employer with the state's tax agency and unemployment insurance agency
• Withhold state and local income taxes according to that state's rules
• Pay state unemployment insurance tax in the employee's work state
• Determine whether you need to register with the state's workers compensation authority
• Comply with new hire reporting requirements in each state
• Evaluate whether you have created "nexus" for corporate income or sales tax purposes

Some states have reciprocal tax agreements that simplify withholding for employees who live in one state and work in another.

Workers Compensation

Workers compensation is generally governed by the state where the employee works:

• You typically need coverage in every state where employees perform work
• Some states require employers to purchase coverage through a state fund
• Workers compensation classification codes and rates vary by state
• Employees who travel to multiple states may require coverage in each state or under a policy with an "other states" endorsement

Applying the Right Law

Determining which state's law applies to a particular employment issue can be complex:

• Wage and hour laws typically follow the state where the work is performed
• Leave laws generally apply based on the employee's primary work location
• Non-compete agreements may be governed by the state specified in the agreement, but some states will not enforce another state's law if it conflicts with their own policy
• Anti-discrimination laws apply where the employee works and may also apply based on the employer's principal place of business

Practical Compliance Strategies

Managing multistate compliance requires systems and resources:

• Maintain a matrix of key employment law requirements for each state where you have employees
• Update the matrix when laws change, particularly around January 1 and July 1 when most new employment laws take effect
• Consider using a multistate employment law reference service
• Work with employment counsel familiar with the laws of each state where you operate
• Use payroll systems that handle multistate tax calculations
• Train HR staff and managers on state-specific requirements that affect their day-to-day decisions
• Conduct regular audits of compliance in each state