The significant uptick in remote work created unforeseen challenges for employers during the COVID-19 pandemic. One of the issues centers around employing remote out-of-state workers. State laws and cross-border work arrangements, or lack of such arrangements, are raising tax and employment law issues for employers.
State Tax Laws
Many employees now work in states outside where their employer is physically located, creating tax consequences for employers. Businesses in this situation must assess whether their remote work arrangement creates a tax nexus with another state and subjects them to business taxes and their employees to income taxes.
Some states temporarily waived certain tax obligations related to remote employees. For example, the Minnesota Department of Revenue announced in 2020 that it would “not seek to establish nexus for any business tax solely because an employee is temporarily working from home due to the COVID-19 pandemic.”
In this case, any business physically located in another state but having an employee working remotely in Minnesota due to the COVID-19 pandemic would not be required to pay the state’s business taxes (sales and use tax and unemployment insurance tax). On the employee tax side, income tax filing requirements for Minnesota residents would not change due to telecommuting.
Similar temporary rules, such as those for Pennsylvania and Indiana, expired in 2021, leaving employers with additional tax nexus states in 2022 when remote work remains high. It is important to understand all state income tax and state unemployment insurance tax (SUTA) obligations that result from having remote workers in other states.
State Employment Laws
Much like state taxes, employment laws vary by state:
- Minimum wage: More than 20 states increased their minimum wage rates for 2022. Be sure to check the minimum wage laws in the states (and cities) in which you have workers to ensure compliance.
- Meals and breaks: State law varies with respect to the required time for employee meals and breaks, including time for new mothers to breastfeed or express milk. Check with the department of labor for the states in which remote employees work to ensure compliance with all laws.
- Payday requirements: Some states, like Connecticut, require employers to pay workers on a weekly basis, while others require biweekly pay.
- Workers compensation insurance: Unless there is a state exception due to the COVID-19 pandemic, an employer must purchase workers’ compensation insurance in the state where the employee is actually performing work. Otherwise, the employer could face penalties for violation of the state’s workers’ compensation laws.
Company Policies for Remote Work
Consider new policies specifically written to address remote work, such as time-keeping and break rules for workers who are clocking in and out from home, professional work attire requirements for video conferencing, allowable home office expenses, and maintaining confidentiality and security of all company property and information.
Guidance for These Complex Issues
Contacting an experienced employment attorney can help navigate and manage legal compliance obligations for out-of-state team members.