Remote Work Policies: Legal Considerations Employers Cannot Ignore

Remote work policies involve more legal complexity than many employers realize. An employee working from home in a different state or even a different city may trigger new tax obligations, change applicable employment laws, and create unexpected compliance risks. Here are the legal issues every employer should address.

Wage and Hour Compliance

The Fair Labor Standards Act (FLSA) applies fully to remote workers. For non-exempt employees, this creates specific challenges:

Tracking hours worked

• Employers remain responsible for tracking all hours worked, even when employees work outside normal business hours from home
• Implement a reliable timekeeping system that employees can access remotely (web-based time clock, mobile app, or daily time sheets)
• Establish a written policy requiring employees to record all time worked and prohibiting off-the-clock work
• The fact that an employer did not request or authorize overtime does not eliminate the obligation to pay for it if the employer knew or should have known the work was performed

Meal and rest breaks

• State meal and rest break requirements apply based on the state where the employee performs work, not where the company is headquartered
• California, for example, requires a 30-minute unpaid meal break for shifts over five hours and paid 10-minute rest breaks, regardless of whether the employee works in an office or at home

Reimbursement of expenses

• Several states, including California, Illinois, Iowa, Montana, and the District of Columbia, require employers to reimburse employees for necessary business expenses
• This may include a portion of home internet costs, phone bills, and office supplies when employees are required to work remotely
• Even in states without mandatory reimbursement laws, failing to reimburse expenses that bring an employee's effective hourly rate below minimum wage creates an FLSA violation

Multi-State Tax and Employment Law Issues

When employees work remotely in a state different from the employer's location:

State income tax withholding

• Employers generally must withhold state income tax in the state where the employee physically performs work
• Some states have reciprocal agreements that simplify withholding for cross-border workers
• A handful of states apply a "convenience of the employer" rule, taxing income in the employer's state even when the employee works elsewhere for their own convenience

State unemployment insurance

• Unemployment insurance is generally owed in the state where the employee performs work
• If an employee works in multiple states, a localization test determines which state receives the unemployment taxes

Employment law compliance

• The state where the employee works typically governs wage and hour laws, anti-discrimination protections, leave requirements, and other employment regulations
• An employer based in Texas with an employee working remotely in California must comply with California's substantially more protective employment laws for that employee

Business registration and nexus

• Having employees in a new state may create nexus for state corporate income tax, sales tax, or business registration requirements
• Consult a tax advisor before approving remote work arrangements in states where your company has no existing presence

Workers' Compensation

Remote workers are covered by workers' compensation for injuries arising out of and in the course of employment:

• The injury must occur during work activities, but defining "work activities" is more ambiguous in a home setting
• Employers should require remote workers to designate a specific workspace and maintain it in a safe condition
• Workers' compensation coverage is typically required in the state where the employee works, which may necessitate a new policy if the employee is in a state where you have no existing coverage

Privacy and Monitoring

Employers have legitimate interests in monitoring remote workers' productivity, but must balance those interests against privacy rights:

• Disclose all monitoring in writing before implementation. Include what is monitored (keystrokes, screenshots, web activity, location) and the business purpose.
• State laws vary. Connecticut and Delaware require notice before electronic monitoring. Several states restrict specific types of surveillance.
• Avoid monitoring personal devices unless your BYOD policy clearly authorizes it and the employee consents in writing.

Building a Compliant Remote Work Policy

Your written policy should address:

1. Eligibility criteria for remote work
2. Required work hours and availability expectations
3. Timekeeping procedures for non-exempt employees
4. Expense reimbursement process and eligible expenses
5. Equipment and technology requirements
6. Data security and confidentiality obligations
7. Workspace safety expectations
8. Monitoring and privacy disclosures
9. Process for modifying or revoking remote work arrangements

Have employment counsel review your policy, especially if employees work across multiple states. The cost of a legal review is far less than the cost of a wage and hour class action or a multi-state tax audit.