Don't Bury Your Head: Face Out-of-State Employer Challenges Head-on

This week in HR, can we agree that hiring out of state is more involved than posting an ad on Indeed? If your business is scaling out of state, as many are these days in a never-ending quest to find the right talent, or because the talent you’re already managing have moved out of state as a byproduct of Covid or other disasters, you may already know you have to register your business with the secretaries of state wherever you have workers deployed and pay taxes accordingly (employee / employer).

I started to reminisce about days gone by in former professional roles. One moment stood out on this topic of growth out of state…years ago, I worked for an extremely fast-growth company. We were on a PEO when I was hired. It was the first time I’d ever even heard the idea of a PEO. I had also never been responsible for scaling into new states for any previous employer that didn’t have a large back office to do the accounting leg work of registering the business and managing payroll compliantly. Well, that all changed – and quickly. I was charged with building out a legal consulting department, doing the recruiting, project management, marketing, billing, and overall departmental leadership. It was a big undertaking for more reasons than the sheer volume and variety of the work.

Within 3 weeks, I was tasked with sourcing, vetting, and hiring large litigation teams in DC and in Boston, and even more a few weeks later in Chicago. I didn’t know this until I tried to hire my first recruit in Boston, but the PEO was very expensive—almost $2K per annum in admin fees per employee, in addition to transaction costs. This went for permanent and temporary project employees, like my litigators. This threatened to wipe out what little margin there was on this kind of consulting. Long story short, the company’s owners, investors, and I strategized and created a second entity that was a subsidiary of the parent holding company, so we could circumnavigate the PEO contracted for parent company for my division. We signed up quickly with the largest payroll provider (named in three letters), which performed less than adequately, and I was running payroll for a new entity for over 60 employees in multiple states within 3 weeks of starting my division.

There was a lot going on. What I didn’t know I was missing, when I commenced a new business entity and FEIN, later bit me in the behind. I took for granted that state by state registration was a matter of course, that if you hire someone in a state, you are obligated to ensure you are registered to do business – to employ in the state.

Here’s my point, if you have employees working in different states, even if temporary but longer than a month, you should register to do business in the states where your employees are working in accordance with the operative state’s laws. There are at least two reasons why states demand compliance on this front, and it has to do with tax revenue and state unemployment insurance. Think about it, if your employee involuntarily separates, not for cause, they will need to apply for unemployment insurance benefits through the state in which they live—where they worked. Unemployment coffers are desolated after a year and a half of COVID-19 and natural disasters from the Gulf South to California to New Jersey. And their barrenness doesn’t result from shortages in revenue and high utilization, it also results from this unprecedented employee diaspora and the lack of proper state tax allocations.

If you’ve already grown into other states, you might already know all of this. But if you look at your workforce on a map, and any aspect of this anecdote has you biting your nails, give us a call. We can walk you through the process of ensuring compliance with state laws. And, by the way, state laws related to taxes are among many, many essential considerations. Think about wage and hour, employee relations, safety, and other requirements, like New York’s sexual harassment training requirement for employers, or San Francisco’s Healthy SF initiative…

I went through many of the pains of scaling quickly, so you don't have to bury your head. I was forced through them so quickly it almost always hurt, like my joints hurt when I grew 4 inches in 6 months at 14 years old… Additional challenges relate to the reliability of your market intel and how that brings to bear on your workforce plan. I have written extensively about managing a remote workforce in the recent past, but that’s still a major consideration as your employee map continues evolving as conditions in the US market continue to evolve.

Here's some other relevant guidance for remote employees:

Poster Requirements for Employers

Many federal, state, and local labor laws require employers to display posters in the workplace outlining the employee’s rights. Of course, physical posters aren’t as effective for remote employees who don’t come into the workplace each day, even if labor laws require that you have them posted.

Depending on the applicable posting requirement, it may be appropriate to provide postings electronically or to mail them hard copies that they can post at their remote worksite. Again, it’s key to check all applicable laws to ensure compliance with posting requirements.

Workers’ Comp for Remote Employees

Do you need a workers' comp policy that covers remote workers? The short answer is yes. Just because they’re not working in the office itself doesn’t necessarily mean they don’t need to be factored into the workers’ comp policy. They may be eligible to receive workers' comp benefits for injuries or occupational illnesses that occur at home — if the injury or illness arises out of and in the course of employment.

Different States (and some localities) have different payroll tax requirements

Be sure to check state wage and hour laws for additional requirements, particularly around record-keeping, overtime, minimum wage, exemptions, pay frequency, and pay statements. Luckily, through isolved, our cloud-based HRIS, you have built in tax forms that are up to date and isolved automatically calculates ee / er burdens to the state and federal, according to wherever employees are designated working.