October 13th, 2021

What You Need to Know: Multi-State Compliance

Remote work has increased as a result of the pandemic and provided a lot of opportunities for employers. Greater diversity and access to a broader pool of candidates can offer more flexibility to hire and retain talented people. And a geographically diverse workforce can make it easier for businesses to grow. However, ensuring multi-state compliance is one drawback to having workers in varying states or a remote work business model. 

Employees are usually subject to the laws of the city and state where they live and work. So multi-state compliance is adhering to the laws and regulations of each location where you have workers — which can be difficult. Whether you open a whole new office or hire just one remote worker in another state, you have to adhere to the rules for that location.

To help with the challenges of workers in varying states, here is what you need to know about multi-state compliance.  

Multi-State Compliance — What to Look Out For

Compliance is complicated when you’re keeping up with federal, state, and local laws and regulations in one location, let alone multiple states. Specifically, it can require careful policy development and communication. To narrow your focus, start with the areas that laws and regulations are most likely to vary on a state or local level: 

  • Payroll processing: Taxation, withholding, and record-keeping
  • Benefit requirements: Leave, workers’ compensation, and unemployment insurance
  • Wage and hour laws: Minimum wage, overtime, and break requirements 
  • Discrimination laws: Pre-employment screening and sexual harassment training 

If you have employees in other states, your company must be registered with that state and its state tax agencies to properly handle employment taxes. And depending on if you’re doing business there, you’ll also need to register as a foreign entity in that location and submit applicable certificates or licenses.

Under the Family Medical Leave Act, many states have made their own extensions or modifications to the law. For example, California imposes stricter guidelines and broader definitions that make it easier for employees to qualify for FMLA. The Fair Labor and Standards Act is another example where states extend the act into unique laws and regulations — specifically, for overtime and break requirements. 

Discrimination laws are another evolving area that’s unique to each state. In states such as Colorado, Connecticut, New York, and California, pre-employment screening that asks about salary history or criminal history is being banned. And right now, though there is no federal mandate, California, Maine, and New York are imposing new guidelines for sexual harassment training. 

Steps for Multi-State Compliance 

  1. To implement HR policies and procedures to be compliant with varying laws and regulations, start by making a list of your workers in other states. It helps to have a means for tracking your employees’ employment status and location, should anything change. Luckily, most payroll platforms have this ability. 
  2. Conduct research of local laws and regulations in each state you have workers. Take note of the ones that differ from your main location of business. Many states Secretary of State websites have resources for businesses on this subject. 
  3. Factor differing requirements into your existing HR policies and procedures. Your time off, leave, benefits, the application process, and policies are the most likely to be impacted. And if your workers are remote, put together a remote work policy that includes things like the definition of a remote worker, eligibility, requirements (e.g. equipment, communication, security, safety, etc.), and legal rights.

Download Our eGuide: Understanding Today's Remote Work Reality

Learn more about the shifting workplace dynamic and how your business can adapt to a more geographically distributed workforce.

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Other Advice for Multi-State Compliance

Conducting research and trying to comply with every state you do business in can quickly become overwhelming if you do work in two or more states. There are some ways to limit the burden. Employers can limit the states where workers can apply from or live in. Jobs that require travel within a certain region often take this approach to limit the cost of cross-country travel. Just make sure this is specified in your policies and job descriptions.

Another strategy is to allow workers to work remotely, but require they live in the state you do business. In other words, your business is based in Denver, but you allow workers to live in Boulder, Fort Collins, Castle Rock, or other locations in the state of Colorado. 

Last, employers could take an “umbrella” approach to workplace compliance by following the states with the most stringent employer laws and regulations or the state with the policy most favorable to employees.  California is one state where businesses have to follow more complex and evolving labor laws. By following this state, your business will likely comply with other, less regulated locations. However, keep in mind that it’s still best to understand how other states operate because of the nuances in how things are recorded or enforced. 

Employers can vary how situations are handled based on the state in which each employee resides. But for administrative ease, it’s usually best for employers in multiple states to take the “umbrella” approach. However, as long as your policies comply with each state’s provisions at a minimum for workers residing in that state, you will be compliant.

More Support for Compliance

Having an HR partner that can handle the complexities of being compliant in multiple states may be the easiest option. 

Our certified payroll specialists and platform make it easy to adhere to payroll processing requirements across locations. And we’ve teamed up with some of the largest health care and voluntary benefits providers to provide coverage across the U.S. 

Colorado is another state that faces increasing regulations and complex labor laws. As a result, Obsidian HR is well informed of the changing landscape and has legal experts on hand to help. We can assist you in getting compliant if you do business in Colorado or other states. Download or guide on Colorado’s 2021 laws and regulations to learn how to get compliant. 

Download Our eGuide: 2021 Employment Laws & Regulations

New employment laws and regulations in Colorado went into effect on January 1, 2021. Understand what the new laws mean for your business.

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