Having a virtual workplace can save so much trouble. No more rent for office space, no more shuffling desks around, no more buying toilet paper for the staff bathroom. But these worries are replaced with a few new complications. One you might not have confronted before is dealing with state laws and taxes for several different states. If your remote employees work from out of state, does that mean you run a business in those states? What laws do you need to know?
State Labor Law
Each state has its own labor laws, minimum wage, workers’ compensation laws, and so on. So for every remote employee working out of state, you will need to know what the laws are in that state. This might not require any further action, if the employee’s state has laws the same or less burdensome than yours. But if their state has additional laws about labor, you will have to follow them even though your base of operations is elsewhere.
For instance, in the state of California, overtime is not only required when an employee works over 40 hours a week, but also when an employee works over 12 hours in a single day. You do not have to make this your company policy for all employees, but you do have to follow the law where a California-based employee is concerned.
Laws you may need to follow for your remote employees include laws on required leave, employee or contractor categorization, paycheck deductions, workers’ compensation, drug testing, and more. For each law, you will need to ensure your treatment of your employees in each state comply with the law of their state.
State Employment Taxes
Most states also have a state income tax. That tax is levied on income earned in the state—meaning your out-of-state employees should have state taxes deducted for their state, not yours. There may even be town or county taxes. This makes it vital to have a current address for where each employee does their work.
In many states, you will need to register with the local tax authorities. How burdensome this is depends on the state. Do your research when each employee is hired to be sure you are compliant with all tax laws.
In five states—Arkansas, Connecticut, Delaware, Nebraska, New York, and Pennsylvania—employees may find themselves double taxed on the same income. State taxes are levied on everyone working for a business located in these states. If your main location is in one of these states, your employees may need to seek out tax credits against the taxes they pay in their state of residence to avoid double taxation.
As you can see, this can become increasingly complex the more different states your employees work from. Hiring a tax accountant is essential.
How to Stay Compliant
As you can see, once you start hiring employees nationwide, a lot of new requirements emerge. This will only get worse the more spread out your employees are. If you own a large business, you should probably hire someone to keep track of these legal and tax requirements. This person can follow up on necessary state and local paperwork to make sure you are in the clear.
If your business is smaller, it may make more sense to focus on hiring employees from your state or a small number of nearby states. This greatly reduces the administrative burden when it comes to keeping track of out-of-state employees.
Where taxes are concerned, you will almost certainly need an accountant if you hire remote workers from out of state. Since you will have to deduct payroll taxes and prepare W-2s for multiple different states, you need someone with more than basic knowledge.
Do You Have the Help You Need?
Turning your business fully remote can save you money, but it can require unexpected changes in the way you work. To stay abreast of your business’s needs, you might find it helpful to seek outside advice. A business financial advisor can be the ally you need to navigate the challenges of running your company. We can introduce you to the right professional for you if you contact us today.
