Multi-State Employee Headaches

With the ever-changing workforce, it is extremely common for Employers to have employees in multiple states.  This is becoming so common, and so are the headaches it is creating for Employers to deal with.  Pre-Covid, most Employers had 2-3 States to deal with.  Now with remote work, our average Employer has 5-6 States.

The biggest issues Employers are faced with are Employer Tax Issues and State HR Compliance.

In this article, we will focus on Unemployment & Withholding rules, as well as general HR compliance such as Paid Time Off rules and Retirement requirements.

When an Employer offers a job to a candidate in another State, they almost always forget about the tax rules that come with that new employee.  The rules for Unemployment are very simple:

You pay unemployment from the State the Employee works in.  Not where the Headquartered office is located.  This is probably the most common error we see when we convert customers from other providers.  It is also the most commonly misunderstood rule.

For Withholding tax, the rule is to withhold tax where the Employee earns income from, regardless of where they live (resident location).  The only exception to this rule is if there is a reciprocity agreement between the Employer’s State and the Employee’s State.

The rule of thumb is to open an Unemployment and Withholding account in the State where the remote employee works.

We get asked a lot, can the Employer just not open the tax accounts?  This is NOT an option.  You MUST open the accounts and withhold the proper taxes, as well as report to the State.

In addition to the taxes, as soon as you hire an employee in a new State, all of those State labor laws apply to that Employee.  From minimum wage, paid time off, retirement, etc

This is where most Employers get themself in trouble.  Employers operate based on the laws they are familiar with, which is more times than not the State they are personally based out of.

When you hire an employee in a new State, you must abide by that State’s rules and regulations.

This can get very complex to manage.  For example, some States have various rules about paying time off upon separation.  Knowing all of these rules is nearly impossible for most Employers.

There are two solutions to this problem.  The first is to have real HR support for your business.  When hiring an employee in a new State, talk to them.  Find out the rules that you may be required to adjust to.

If you already have a lot of employees in other states, the next option is to have a company policy in place that exceeds the highest requirements of the States you operate in.  For example, if you operate in a State that requires time off to be paid upon separation, you can create a company policy that provides blanket coverage to you.  You still need to know the rules of each State, but it makes managing the rules less complicated.

If you want to handle items like time off paid upon separation, on a State by State basis, you will need to be sure you are working with your HR team to ensure you are aware of the rules you must follow.

Did you know PeopleWorX offers HR Services, Consulting and more to our Customers?  If you do not have a HR resource, ask us today how we can help.