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6 Tips to Help you Stay Compliant When Hiring Out-of-state Employees

Since the COVID-19 pandemic, we have seen a drastic change in the workforce leading to a significant increase in remote employees. It just makes sense. Employers see cost savings, have a wider talent pool, and see better employee retention when hiring telecommuters. From an employee perspective, they experience less work-related stress, have a better work life balance and are more productive. While there are many benefits to hiring out-of-state remote workers, it’s important to understand and HR compliance with state and federal requirements.

If you are looking to hire an out-of-state employee, here are 6 tips to read through to make sure you stay compliant.

First things first, make sure your business is registered in states that you have workforce in.

To register your business in a new state, be sure to research the correct application process, as each state’s process can differ. Usually, the registration process will start with the Secretary of State. Once registration is completed, based on individual state’s requirement, there will be additional action items you need to complete. Look into applying for permits, filings for taxes in a timely manner, registering as an employer, etc.

Research labor laws and how they will affect your business.

It’s important to be mindful of federal compliance as well as state labor laws when hiring employees in different states. They can be widely different depending on where you are hiring. For example, some states require employers to provide state sponsored benefits coverage (ex: New York). Other states like Connecticut require employers to withhold money from employee’s wage to go towards state sponsored benefits coverage. It is tricky navigating through differing state regulations. Start by doing your research and visit the state’s Department of Labor website. The SHRM website also has excellent resources to learn more about different state regulations and how they will affect you and your business. 

How unemployment taxes work

Unemployment taxes are usually withheld at two levels – federal and state. Federal unemployment tax or FUTA is a federal payroll tax imposed on employers who pay wages to employees. It does not vary across different states. State unemployment tax or SUTA is a state-imposed payroll tax. SUTA can vary wildly across different states. Some only require employers to pay SUTA, while other states require both employer and employee contributions.

Despite the differences in requirements, the purpose of the FUTA and SUTA is the same across the board – to offer basic government financial assistance to the unemployed. Each state has their own sets of tax rates and taxable wage base.  Based on the workforce information you provide to the state, it is up to the state’s labor department to evaluate and provide the rate at which SUTA is imposed. As a business, you can expect the rates to fluctuate annually based on the workforce fluctuations. There are multiple resources and libraries that are dedicated to FUTA, SUTA, other withholdings, and compliance. You can also start your research by visiting the state’s Department of Labor.

Research PTO requirements

Paid time off is usually seen as a perk or benefit provided by employers to attract talent, but some states require employers to offer mandatory paid sick leave (ex: California and Colorado). If you are looking to hire an employee in a state or city you are unfamiliar with, it’s important to do your research.

For example, an extreme scenario would be that different cities in California have different regulations when it comes to the maximum amount of paid sick time an employer has to provide annually. For employers with 25 or more employees, an employee based in San Francisco can accrue 1 hour paid sick time for every 30 hours worked, carryover allowed, capped at a maximum of 72 hours of paid sick time; while an employee based in San Diego will also accrue 1 hour paid sick time for every 30 hours worked, but employers can cap the total accrual of paid sick time to 80 hours.

Understand COVID restrictions

Since the pandemic, almost all states have rolled out, in one form or another, memos, guidelines, and regulations to protect the labor force. Many states have taken the initiates to provide government sponsored benefits and assistance to employees. It’s very important to be aware of the initiatives and regulations being put in place both federally and statewide as responses to the pandemic.

The onboarding process across different states

In recent years, the pre-employment screening process has become more complex to navigate when it comes to drug tests because of our geographically diverse workforce. This has led some employers to eliminate the pre-employment screening process all together from the onboarding process.

If you do choose to run a drug screen and background check, it’s important to do your research on the vendor that you will use to provide you with the screening service. Most of the larger vendors offer the same level of service, so the burden of cost to the employer is a priority to consider. Each vendor will offer different pricing, but at the end of the day, they all use the same database.

If you are about to start your hiring search and are open to hiring remote employees, we hope these 6 tips will help you stay compliant. 

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