Remote work is here to stay, and with it comes a growing trend: employees who live in one state but work for a business in another. For New York-based businesses, this often means managing workers who reside in the Tri-State area or even farther away. It might seem simple on the surface, but hiring across state lines brings real legal responsibilities. If your business has out-of-state employees, there are a few key areas you can’t afford to ignore.
Tax and Withholding Requirements
One of the most common issues businesses face with out-of-state employees is taxes. If an employee lives in a different state than your business, you may be required to withhold income tax for that state, not New York. Each state has its own tax laws, and not all of them work the same way. Some have reciprocal agreements with New York, which can make things easier, but others don’t, meaning you may need to register for tax withholding in that state.
Also, some states may require your business to file corporate income tax returns if they determine you’re doing business there. That determination could be triggered simply by having one remote employee working in that state. For example, Illinois requires foreign corporations to obtain authority to transact business, with potential penalties and interest for noncompliance. Similarly, California requires foreign businesses to file a Statement of Information and imposes daily penalties for unauthorized business activities. Other states such as Florida, New Jersey, Colorado, and Tennessee, also have clear registration, fee, and penalty structures in place for businesses operating without authorization.
If you hire a remote employee who resides in another state, it’s essential to review that state’s requirements for corporate registration and ongoing reporting. Failing to do so could result in penalties, tax liability, and loss of access to that state’s court system.
Employment Laws, Insurance, and Leave Policies
It’s not just about taxes. When you employ someone living in another state, you must also comply with that state’s employment laws. That includes things like minimum wage, paid sick leave, and final paycheck rules. These can differ significantly from what you’re used to in New York. If an employee in Connecticut has a right to paid family leave under state law, you might be required to offer that benefit even if your New York employees don’t have it.
You may also need to carry workers’ compensation insurance in each state where you have employees. New York coverage doesn’t automatically extend to employees in other states. Additionally, unemployment insurance registration and contributions usually have to be made to the state where the employee physically works, not where your company is located. States like Colorado and Tennessee impose annual filing and reporting requirements for foreign entities, and noncompliance may result in fines, back taxes, and other liabilities.
Plan Ahead, Avoid Headaches
Hiring across state lines can be a great way to attract and keep talent, but the legal implications of hiring need to be considered. Take the time to set things up correctly from the start. That means registering with the right state agencies, updating your HR policies to reflect local employment laws, and ensuring you’re compliant with tax and insurance rules.
If you’re unsure where to begin, it helps to talk to a legal advisor who understands multistate employment issues. The attorneys at Rodriguez-McCloskey PLLC help business owners get clarity and stay compliant. Contact us to learn how we can help your team work effectively—no matter where they live.
