- Paid sick leave: Some states have statewide policies while other states have multiple cities with their own policies.
- FLSA exemption: Are your workers going to fall under the same FLSA exemption as your current workers? A worker in California is required to meet a higher salary threshold than workers in other states in order to fall under this same exemption.
- Overtime: If workers are entitled to overtime it will vary by state. Some states require payment over eight hours daily and other states work it out based on the weekly total.
- Non-competes: Non-competes are another thing that differ by state. For instance, some states don’t see non-competes as viable and there could be liability if you include this language in an agreement.
Hiring in a new state? Here’s what you need to know.
It’s an exciting time for your business – you’re looking to expand and hire workers in a new state. This might be your first time and you’re beginning to realize that it comes with heaps of administrative items, set-up and legal considerations. There are some important processes to establish to ensure that you can support your workers while also staying compliant with each state’s employment laws.
First, you need to have an understanding of the type of engagement you’ll have with the worker. Will they work for you directly or just complete one-off projects, like designing a website?
If they will work for you directly for an extended period of time and perform work similar to that of your current employees, and you plan to offer them benefits, then according to classification laws they will be required to be paid as a W-2. This means that the employee will have access to your benefits and you’ll be responsible for all the usual employment-related matters.
If the worker is completing project-based tasks, you may be able to simply engage them for the project either as a corporation or as a 1099. We advise that when you engage with a worker who is not classified as a W-2 employee that you have a robust classification process to protect your company from liability and penalties from misclassification.
If you decide that the worker will be employed as a W-2 in different states, here are eight things to know:
Engaging a worker in another state will most likely trigger Nexus, which requires you to register in that state for taxation purposes.
Since payroll is a tax, this often means that you’ll be required to file your company in that state, become compliant with their department and manage returns there. For every state in which you employ workers, you will need to be set up and fully registered prior to running payroll. This comes with annual costs, filings and audits, and varies state by state.
General liability and professional liability coverage often cover onsite workers. Review your policy to make sure that off-site workers are also covered. A best practice when employing off-site workers is to carry cyber and crime insurance. It’s important that you have adequate insurances for your business model and are aware of possible increased costs.
Workers’ Compensation Insurance
Every worker you engage is required to be covered by workers’ compensation, which is managed differently state by state. Some states have monopolistic coverage and you can go directly to the state, but most require that you obtain coverage from an underwriter. It’s a good idea to approach your current carrier to see if you can obtain a nationwide policy or add the new state to your current policy. You may see an increased workers’ compensation cost in a new state because you are an unknown employer and will be given a higher modification rating until you develop your own experience rating. These characteristics work together to make up the rate that you pay for this insurance coverage.
If you do not have an office-based environment, you may have difficulty finding an underwriter as they normally want a higher payroll volume to make up for the risk of adding a new state. Don’t be alarmed, you can always go directly to the state risk pool where an underwriter is required to write you a policy, which will be an increased cost base.
We’d advise working with a payroll company that can help you manage all the new payroll deductions for each state. You’ll be given a State Unemployment Tax Act (SUTA)/State Unemployment Income (SUI) rating based on your operating experience in that state. If this is your first engagement in the state, as an unknown employer you will generally start off in an average tax bracket. If you maintain a good employment rating with a low number of workers filing for unemployment after engagement with you, your tax rate should drop in time.
SUTA and FUTA (Federal Unemployment Tax Act) are taxes that go to a fund for unemployed workers at the state and federal levels. The rate is a combination of your experience rating as an employer, the state’s unemployment rating and federal unemployment rate. This tax changes on an annual basis based on these details and how they vary.
Each state has different requirements for payroll schedules. For example, in some states you can pay workers monthly based on their job descriptions or if they receive commission. Other states have a much tighter turnaround on hours worked to hours paid.
Having great benefits is a hallmark of being a good employer and something a lot of companies aim to offer workers. Most compliance on benefits is federally mandated, so it is likely that the benefits you currently manage will apply to your new workers in a different state. Speak with your team that currently oversees benefits to explore options moving forward. However, certain states have separate requirements on how benefits must be administered and which benefits must be offered. For example, certain employers in New York must offer commuter benefits.
If you’re a small business, you may want to review your benefits as some providers have great coverage in certain cities and not others. For example, some healthcare providers have good in-network coverage focused on the city in which you are headquartered but may not have a strong network in your new state of operation.
Compliance is a complicated area, so we strongly advise speaking to your legal counsel and HR support team to make sure you get it right. Language in employment agreements can vary by state, but the most common components include the following:
There are a number of different aspects to onboarding, including setting up a remote worker’s computer, ensuring access to systems and first-day training. You’ll need to consider compliance paperwork such as the I-9 since you won’t be able to visually identify a new remote worker’s ID in person. You may want to consider using a remote agent or authorized agent to facilitate this. Remember, this has to be completed by the third day of employment or there is liability on your company.
Engaging a worker in a new state represents a time of opportunity and growth for your company.