Compliance Checklist for Businesses With Employees In Multiple States

Remote working is here to stay.

A recent poll of 500 companies reveals 38% of organizations use remote working to ease wage growth pressure and keep staff happy, with another 41% expecting to do so over the following year.

But, while alleviating business costs may keep inflation down, employing remote workers can cause legal complexities, mainly when these workers work in a different state.

If your (remote) staff are based in multiple states, you may wonder how to stay compliant while still giving employees flexibility.

In this article, we’ll explain which workplace laws you need to watch out for and present you with a compliance checklist for employees in multiple states to help you avoid penalties.

Which Workplace Laws are Important for Multi-State Employers and Why?

The U.S. Department of Labor enforces more than 180 federal labor laws. These laws include The Fair Labor Standards Act (FLSA), The Occupational Safety and Health Act of 1970, the Social Security Act, and the Family and Medical Leave Act (FMLA).

Often, many states have made modifications or extensions to these laws. Multi-state employers need to know what these state laws are so they can stay compliant. Generally, state laws give more protection to employees than federal laws.

Below are the main areas where employers need to be extra vigilant, as workplace laws and regulations are likely to differ:

Payroll processing – think tax: withholding and recordkeeping.
Benefit requirements – sick leave, voter leave, military leave, compensation, and unemployment insurance.
Wage and hours laws – cover minimum wages (many states have set a higher minimum wage than the federal minimum), overtime, and unemployment insurance.
Discrimination Laws – these include pre-employment screening & sexual harassment training.

Drug testing – laws vary per state, including regulations around testing employees.

Workplace laws differ substantially per state. In Oxfam’s 2022 Best States To Work Index, states were scored on wage policies, worker protections, and rights to organize. Oregon ranked as the number one state to work in, with North California being the worst state for workers.

So which law do employers follow when federal and state laws conflict? Article 6, Paragraph 2 of the U.S. Constitution states that federal laws are the supreme law of the land.

However, labor laws provide an exception, as they can supplant federal laws in some circumstances.

Why? Because labor laws protect workers’ rights, health, and financial remuneration.

So, when there is tension between federal and state laws, the U.S. Department of Labor instructs employers and employees to follow the regulation providing the highest protection for employees.

For example, California has a higher minimum wage than the federal minimum; thus, employers must follow its state law.

Whether state or federal law, staying compliant is essential; if you don’t, you could be liable for penalties, non-economic damages, lost wages, and attorney fees. Avoid these by being proactive and ensuring out-of-state compliance before hiring remote workers.

Also, studying our compliance checklist for employees in multiple states is a good starting point for compliance.

Compliance Checklist for Multi-State Employers

Our compliance checklist for employees in multiple states lists 14 items you’ll need to cover to develop a comprehensive remote work policy and stay compliant.

If you need help assessing obligations under various state laws, find out what we can do for you here.

1 – Make A List of Remote Workers

Assess how many workers work in a different state from your company. The number of workers is essential, as there may be additional regulations and laws if there are more than ten workers in that particular location.

2 – Register Your Legal Entity

Evaluate whether hiring a worker in a different state means you are “conducting business” there. The answer depends on the employee’s role and the services they provide for your company.

If yes, you will need to register with the Secretary of State to acquire a “Certificate of Authority to Transact Business.”

3 – Check Payroll Tax Requirements

Determine payroll tax requirements concerning workers living and working in different states.

Do this by checking the following:

Identify in which states you establish a nexus. If a remote contract triggers nexus, you will need to register as a withholding agent and withhold that state’s income taxes from the pay of staff earning wages there.
Check if the given state has a reciprocity agreement. If yes, this agreement could trump general rules.
Analyze where your workers’ ‘employee working state’; in other words, track where exactly they perform services for you.
Establish staff’s domicile. (Employee Residence State)

4 – Register With The Unemployment Insurance Administration

5- Be Payroll Compliant

Consider state wage laws and ensure that relocating employees complete a new W-4 before updating payroll.

6 – Comply With State Hiring Laws

There are state-legal variations on artificial intelligence (AI) in hiring, ban-the-box laws, background checks, drug screening, and at-will employment. Marijuana testing also varies by state. For instance, in Alaska, Arizona, California, and some other states, marijuana is fully legal.

7 – Check if Your Given State Has Different Wages and Hours

Some states have higher or more protected wages than federal law.

8 – Comply With Insurance Requirements

Comply with healthcare insurance, disability insurance, business insurance, commercial auto insurance, and professional liability insurance.

Also, employers must add the given state to the worker’s compensation policy.

9 – Be Aware of FMLA State Variations

You may be surprised at the many state varieties of this law. Check the categories of Paid Time Off, Disability Leave, Family Leave Insurance (FLI), and Jury Duty Leave.

10 – Stay Compliant With All Anti-Discrimination State Variants

It’s worth checking all relevant state laws, as many states have added protected characteristics. These can include characteristics such as gender identity, sexual orientation, gender expression, and natural hairstyles.

11 – Don’t Forget To Comply With These Other Laws

Analyze and comply with all workplace federal and state regulations. Ideally, do this before you hire employees working remotely or open an office in that state.

Also, remember some cities or counties may have hyper-local employment laws. For instance, workers in San Francisco have additional protections to state ones.

There are many workplace state and federal regulations.

Here are some:

Background and credit checks
Child support
Concealed carry
Direct deposit checks
Employee training
Employee surveillance
Labor unions

If you’re interested in getting help with these tasks, contact us for guidance on how to stay compliant as a multiple-state employer.

12 – Update the Employee Handbook

Include compliance policies of all relevant states in your employee handbook and explain the employer and employee responsibilities.

13 – Create Remote Work Agreements

Ensure these agreements contain the following:

Written approval for the employee to work remotely.
Policies on equipment and software used.
Confirmation that the agreement does not alter the at-will employment relationship.
Timekeeping requirements.

14 – Get Expert Guidance

Get professional help with our HR Consulting Services to guide you in the legal maze of state and federal regulations.

Moving Forward

While remote working is popular, with employees thriving on its flexibility, there are many legal considerations for employers hiring (remote) staff working out of state.

If you find yourself in that situation, staying compliant might be a headache, considering each state has many extensions and modifications to federal workplace laws.

Our compliance checklist for employees in multiple states will help you avoid hefty fines by flagging the regulations you need to know to keep you compliant.

If you’d like to speak to an HR representative about your business, contact us.