What to Do and Know as an Employer If You Have Remote Out-of-State Employees

By Ron Bland and Bruce Jobson
March 2021

The pandemic has fundamentally changed our personal and professional lives over these past eleven months. One notable change is that a greater number of employees are working from home, some for the foreseeable future. As a result, many employees do not necessarily have to reside in the same city, county, or state as the company for which they work. Employers are also not confined by geographic limits when seeking to hire new employees during this time. While having out-of-state employees can yield positive benefits, employers should be mindful about the implications. Read on to learn how to ensure your business is prepared to have an efficient and compliant workforce with in- and out-of-state employees.

Residency

There is a high likelihood that one of your employees will relocate during this time. When an employee leaves the state, do you need to inform your health insurance carrier about the employee’s “new” address? The answer is – it depends. We recommend asking more questions to find out.

Does the employee have a set return date? If the answer is yes, you may not have to change their address. However – every state has different standards regarding the amount of time (weeks, months, etc.) that an employee can be out-of-state before they are required to submit a change of address form. Work with your HR team to learn more about each state’s requirements.

Is the employee planning to work at this new address? If the employee intends to answer a few work emails during a weekend getaway, it is acceptable to keep their address as is. However, if the employee intends to “set up shop” and work from this new address, it is highly advised that their address is updated.

When in doubt, the insurance carrier should have the employee’s most up-to-date address. A temporary living situation can quickly become more permanent – better to be proactive than reactive.

Taxes

At this point, you may be asking yourself why you need to update the employee’s address at all. Simply put, it boils down to tax liability. Each state wants to get its fair share of taxes. If an employee moves, loses their job, and then attempts to apply for unemployment benefits, it is imperative that there is a previous record of them residing in that state.

As an employer, you must be sure to understand the various state-level differences on how they define employee residence and taxation for your business. If you have an employee working out-of-state, you and your payroll company need to make sure that you formally register for tax purposes with that state. These registrations can include, but are not limited to, business tax registration, corporate income tax registration, employer withholdings registration, unemployment insurance employer registration, among others. Please confirm with your payroll company that they are filing your out-of-state employees’ taxes properly according to that state.

Work Culture

If an employee is no longer in the same zip code as your business, it is important to consider how distance can impact the work. An 8:00 am morning in California means a 5:00 am meeting in Hawaii.  If you are calling an employee based in New York at 5:00 pm PST, they are answering a work call at 8:00 pm EST.

An out-of-state employee also may not have access to certain office essentials, such as a printer, scanner, or fax machine. Luckily, there are phone apps that can provide scanning and faxing services. Additionally, out-of-state employees may find themselves paying out-of-pocket for office supplies, such as paper, pens, and notepads – it is recommended that employees are reimbursed for, or provided with a budget toward, these items and phone applications.

Employee Benefits

Additionally, each state has different requirements in regards to benefits and policies such as paid leave, sick leave, employee and managerial training, disability insurance, and workers compensation, to name a few examples.

Be aware of the peculiarities and ordinances of where your out-of-state employees work. There may even be local ordinances that now apply to your employees that are working-from-home in a different local city. Your remote employees could fall under local ordinances such as HCSO in San Francisco as well as state-by-state variations in required PTO, paid family leave, vacation time policy, sick days, and more.

For example, most companies in California don’t have short-term disability because the State of California already covers short-term disability. However, some states don’t offer short-term disability insurance, such as Texas. We had a client in that exact situation with an out-of-state employee moving from California to Texas. Luckily, the employer asked us to review their case and we established a short-term disability plan for them to ensure that the employee is covered. If you have an employee working in a state that offers less government benefits, you have to find out what you now must cover as the employer.

Meanwhile, when it comes to health insurance for your out-of-state employees you need to ask, what is the network of health providers like out-of-state? Some national insurance carriers don’t have the same type of network in every state. Even those that do, you should ask what are the most cost-efficient and broadest networks of healthcare providers and hospitals for out-of-state employees, particularly for PPO plans. In other words, are you spending your dollars wisely for your out-of-state employees’ health insurance plans?

So how do you navigate the waters of managing your employee benefits and HR administration for your out-of-state employees? You need to partner with the right team of experts who can help make sure your out-of-state employees are well taken care of.

Disclaimer: Any information related to compliance or other subject matters in this blog is intended to be informational and does not constitute legal advice regarding any specific situation. The content of this blog is based on the most up-to-date information that was available on the date it was published and could be subject to change. Should you require further assistance or legal advice, please consult a licensed attorney.

 

 

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