April 7th, 2022

Remote Work & Multi-State Compliance

Multi-state compliance wasn’t a common term before 2020 unless you were a global or national organization. Now, it’s a trending topic for many employers and human resource teams—that’s because of remote work.  

What Is Multi-State Compliance? 

Multi-state compliance means your business is legally compliant in each state and city where your employees live or work. The reasons you might have workers in multiple locations:    

  1. You have a worksite located in another state. Businesses that border state lines encounter this scenario. 
  2. You have more than one location for your business (i.e. you’ve expanded your business into other states). 
  3. You have a geographically diverse workforce—or remote workers in other states. 

More employers need to be aware of multi-state compliance today than in the past because of remote work. The growth of remote work has many businesses hiring employees in other states or letting their employees move to another state. And why not! Remote work provides many benefits:

  • You can more easily recruit and create a diverse workforce
  • Remote work often results in time savings translating to increased productivity and higher performance 
  • Employees can live and work where they want—leading to better retention rates and employee satisfaction
  • You can lower your business costs by not having to lease an office space 

One major drawback of remote work is the burden it places on employers to be multi-state compliant. Some businesses have opened the door to a fully distributed workforce without considering the implications. But multi-state compliance is complicated. 

The Impact of Multi-State Compliance 

Employers are aware they have many legal obligations. But your legal obligations can more than double the second you allow one worker to live in another state. If a business is not well-versed in employment laws for each location—they leave their business open to risk.  

That’s because labor law has changed more in the past 10 years than in the previous 50.1 Laws and regulations can change at the federal, state, and local levels. So as your business or workers expand into new regions, you could unknowingly face compliance issues.

For example, if an employee lives in a different state than their employer, the employer still has a legal obligation to that employee. Should something happen where that worker decides to pursue legal action, and the business is not in compliance in that state, the employee will likely win their case. 

The consequences of not being multi-state compliant can be severe depending on the state. You could deal with taxes, fees, and penalties, ranging from $1,000 to $10,000. 

Some states can even ban you from doing business in their region until you’re in good standing. In California, a customer or employee who finds you’re not compliant with the state can result in voided customer contracts. But there are more than just legal risks associated with having workers in other states.  

The Challenges of a Geographically Diverse Workforce—Beyond Compliance 

Offering Benefits: Offering benefits becomes more difficult with workers in multiple states. Each state has different requirements for paid leave, insurance, time off, and other benefits. Additionally, health insurance premiums are already high. But when you look for regional or national coverage, your options become more limited. So finding and providing cost-effective benefits for workers in every state isn’t always possible. But that doesn’t mean that you’re remote employees don’t want or need them. 

Pay Strategy: One of the perks of remote work for employees is they can live somewhere affordable while maintaining their salary. However, since remote work has grown, this has created a problem in pay equity. 

Geographic-based pay or cost of living adjustments are two solutions to this pay equity problem. 67% of employees expect their compensation to reflect their location.2 So if an employee lives in a more urban, expensive setting—they’d expect a higher salary to maintain their standard of living. But not necessarily vice versa, making a multi-state pay strategy potentially more costly for employers. 

Maintaining the Company Culture: Remote work is still fairly new and many organizations are struggling to define and maintain their company culture—even when you go from an in-person organization to a hybrid or fully remote one. Having workers in various states can create a disconnect among employees. Some time zones and cities will already have their own way of working. As a result, companies and HR teams are having to find new ways to build trust and establish a company culture virtually. 

Even with all the challenges of having a fully distributed workforce, many companies know it’s the future of work. So despite everything we’ve shared, if you can handle multi-state compliance—it will be worth it. Here is a more comprehensive guide on how to get started. 

Download Our Guide: The Impact of an Increasing Remote Workforce: Solving for Multi-State Compliance

Use this guide to consider the tradeoffs of a remote workforce on your HR compliance and manage your multi-state compliance.

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1 Entrepreneurs’ Organization. “Two Crucial HR Trends to Watch in 2020.” Entrepreneur. Jan. 7, 2020.
2 WorldatWork. “Geographic Pay Policies Study.” WorldatWork, 2019