Which Laws Apply to Remote Employees and Out of State Workers?

Since the COVID-19 pandemic, remote work has become an undeniable reality for much of the U.S. For over a year, millions of offices stood empty. Zoom and videoconferencing replaced in-person meetings. Even interviews became remote.

The world of remote employment is the new frontier for many companies who previously maintained in-person workplaces – with pros and cons.

As a business owner, remote work means you have access to a much wider pool of candidates in different states, across the country, or even around the world. You could save thousands or millions of dollars in overhead costs by downsizing or getting rid of your office space. Your employees may even be more productive from home, especially without a commute.

According to a recent survey of venture firms:

• Of the surveyed companies, 49% more offer flexible work-from-home policies for their employees compared to before the pandemic. 36.1% have gone fully remote.
• Smaller companies with 1-50 employees are more likely to be completely remote. Companies with 50-500 employees are more likely to have flexible office policies.
• Only 11.5% of companies expect to return to the same office space they had before the coronavirus pandemic. The overwhelming majority have either gone fully remote, downsized, or rethought their office space in a different format.
• 71% of companies returning to an office will have flexible remote work policies instead of making their employees come into the office for a set number of days.
• Companies are using the money they’re saving on office space to invest in better recruiting and tools for remote workers to succeed.

No matter how well equipped your company is to handle a shift towards remote work, there will no doubt be roadblocks and challenges along the way. For the best chance at a seamless transition, you should talk to a business lawyer about the needs of your company.

Challenges and Essential Tips for Remote Hiring

Going remote may be simple if all of your employees are local to the same state as your business. Employment laws become more complicated when you have remote employees working from other states or even outside of the country.

State and Local Discrimination, Sick Time, and Employee Rights Laws

Once your workforce goes remote, chances are high that you will find talent across state lines. The U.S. has federal employment and tax laws that apply to all states. Each state also has its own employment and tax laws in addition to federal law.

If you want to hire a remote worker in another state, you must navigate multiple levels of law. That means treating workers in line with both federal and multiple state laws. Some laws between states may even contradict each other. Which state law applies then?

These are issues best left to a business lawyer who knows the law inside and out. Making the wrong call can leave you saddled with fines or tax penalties down the line. A business attorney can help you avoid making costly mistakes when hiring out-of-state remote workers.

Remote workers can bring up legal issues with wages, hours, leave, and benefits such as:

• If your business is in one state while a remote worker is in another, the minimum wage is often determined by where the employee works. If the worker is covered by multiple laws, businesses must often uphold the terms most favorable to the employee.
• If a worker is covered by both a state minimum wage and a local minimum wage, you must usually pay them whichever rate is higher.

• Overtime laws vary by state. For example, Pennsylvania workers get overtime for any hours worked over 40 in a week. While in California, overtime begins as soon as an employee works more than 8 hours a day. California also requires double-time for work over 12 hours in a day or over 8 hours on the 7th consecutive workday in a week.

• Payroll laws and taxes are also different for each state. Different states will have different filing requirements, deadlines, and tax rates for employee payroll. States and localities also differ on how often you must pay your employees, what information you must include on their paystubs, and how benefits are paid out.

• Different states give employees different leave benefits, with some more generous than others – such as paid or unpaid sick leave, pregnancy leave, medical leave, or family leave. Leave laws often apply to companies based on their size. Depending on the law, you may be required to provide leave benefits if you have more than 5 or 15 or 50 employees within a certain distance of a worksite. But some state laws require employers to provide leave based on where an employee lives. Failing to provide the required amount of leave for your workers could leave your company vulnerable to employee complaints, government action, or even costly wage theft lawsuits.

• Some states have employee training requirements. Your company may have to provide sexual harassment training or discrimination training during onboarding.

Paying Workers’ Compensation or Unemployment in Other States

Hiring workers in other states means opening up your business to workers’ compensation and unemployment complications. Generally, you must get workers’ compensation insurance in the state where your employee works. The workers’ compensation coverage you have in one state may not necessarily apply to your employees in other states.

You must also make sure you have the right unemployment insurance. The policies you already have may not translate across state lines, leaving you vulnerable to liability.

Foreign Filings for International Remote Employees

Hiring a worker from another country opens up another legal can of worms entirely. Remote work across international borders could mean exposing your company to a foreign company’s tax system. In addition, you open yourself up to U.S. international tax reporting requirements.

Going about an international hire the wrong way can leave you with penalties of up to $10,000 for missed filings, not to mention any additional penalties from the IRS or foreign tax agencies.

When faced with this situation, you may benefit from hiring an international worker as a contractor instead of an employee. This depends on how the company classifies employees versus contractors. You may also withhold taxes based on the relevant country’s standard rate, which may be reduced based on any income tax treaties in place.

While the process sounds complicated, an experienced and knowledgeable business lawyer can help you hire the talent you need for your company’s success, wherever they may be. Call Holmes Business Law now at 215-482-0285 to get started.