As employers are settling into the post-pandemic “new normal,” many offices look much different than they did in 2020. Employers have implemented significant changes in workforce arrangements, with many employees working completely remotely, or in a hybrid fashion, from a home office or a variety of locations, including other states. Remote work arrangements can be a benefit that employers can offer to attract and retain talent, but employers must navigate the compliance and legal hazards that arise when remote work crosses state lines.
If employees are working remotely in different states, state corporate or other business activity taxes may apply – even if a single employee is working in that state. In effect, if an employer did not previously have a recognized office in a state, but one employee starts working from that location, new registration requirements and tax liabilities may be triggered. It may be necessary to register with the secretary of state and relevant tax authorities, provide a registered agent address, and pay corporate and business activity taxes, sales taxes and employment taxes, including employee withholding. There are often state and local licenses and business permits, as well.
Labor Laws and State Disability Programs
Employees who regularly work from home in a different state will likely be subject to the local employment laws of that state, including minimum wage, sick time, overtime, medical laws, leave laws requiring notice to employees, and laws that require participating in state-funded disability programs. Additionally, the out-of-state work must be accounted for when considering restrictive covenant enforceability and employee policy drafting. Employers should be vigilant to ensure that they are aware of any changes to these laws. As one example, in 2022, Connecticut made significant changes to its version of the Paid Family Leave Act, which now requires any employer with more than one employee working in the state to comply with that law.
Federal law requires employers to reimburse employees for business expenses when the expenses reduce the employee’s wages to below the required minimum wage or overtime. Certain states go further and require employers to reimburse for all reasonable and necessary expenditure or losses. Employers therefore should ensure that remote employees are properly reimbursed for expenses. The amount and types of expenses for which employees need to be reimbursed depends on the jurisdiction, but may include cell phone, printer, and internet costs.
Making Informed Decisions On Out-of-State Remote Work
The first step for any employer with remote workers is for the employer to know where its remote employees are actually working. More and more employers have elected to use software that tracks the physical location of an employer-provided device (usually a laptop) or allows the employee to set their physical location upon logging in each day. This information is necessary to understand and comply with the relevant laws and to better assess whether the costs of compliance outweigh an in-state option.
To better navigate these issues related to remote work, employers in all industries are advised to work with their employment, corporate and tax counsel to assess their compliance needs, and take the necessary steps to make remote arrangements work for all.
Kathleen R. O’Toole and Brendan P. Kelley are attorneys at the Boston law firm of Conn Kavanaugh Rosenthal Peisch & Ford LLP. Feel free to send questions to email@example.com or firstname.lastname@example.org.
This column, which may be considered advertising under the ethical rules of certain jurisdictions, is intended as a general discussion of the topics covered, and does not constitute the rendering of legal advice or other professional advice by Conn Kavanaugh Rosenthal Peisch & Ford LLP or its attorneys.