When hiring a remote employee, there are several considerations related to where your employee works and lives which may impact where your business must register, pay taxes, and where your employee pays taxes.
Employee work location
Your employee’s work address should be the address where they physically work. Typically, you’re required to withhold taxes in the location where your employee does their work (which may or may not be their resident state).
To prepare for hiring a remote employee in a new state, you’ll usually need to register with the state where the employee is living and working in addition to where your business is located. You’ll need to understand your withholding requirements in both states.
What if your employee works and lives in different states?
Laws vary by state. If your employee works in a different state, you’ll need to determine that state’s employment tax laws to understand whether you are required to pay taxes to both their home and their work state. Seek advice from a legal or tax advisor.
What if your employee lives out of state but works in your company’s state?
Taxes are owed in the state the employee does their work. In some cases, states may have an agreement which allows employees who work in one state and live in another to only pay income taxes to the state where they live. This arrangement is called a reciprocal agreement.
If reciprocity exists between the two states, employees will need to complete and deliver a non-residency certificate to you in order to have residency state tax withheld instead of the work state tax. If reciprocity doesn’t exist, Every will withhold income taxes in the employee’s work state.
Compliance in the New State
When hiring a remote employee in a new state, you’ll need to comply with that state’s labor laws - which may differ from the laws where your business is located.
The following are some compliance considerations to keep in mind. Check with their local labor department to learn more about their requirements:
- Minimum wage
- Pay frequency
- Final pay
- Meal and rest breaks
- Disability Insurance
- Workers Compensation Insurance