One interesting consequence of the pandemic is the spread of companies’ workforces into new areas. The mass hiring of remote employees is happening in record numbers, and companies are expanding to places they’ve never had employees before. This gives employers the benefit of drawing from a large pool of talent, but it can be a challenge to stay on top of all the requirements of employing workers in multiple states. Here are some considerations for companies who are bravely forging into unknown territories.
Registration Requirements for Employees of New States
Before Hiring in a New State
Employers who are thinking about hiring someone from a new state must consider that some states have limitations on what criteria employers can use to evaluate job candidates and how employers can ask about the criteria, including the following parameters:
- Inquiring about criminal history
- Requesting credit reports
- Background checks
- Drug tests
For example, New York precludes employers from inquiring about or taking adverse action against potential candidates for charges or arrests that did not result in a conviction. New York law also prohibits employers from taking adverse action on a candidate’s criminal history unless those criminal offenses are directly related to the job or license being sought. Employers would need to be aware of these limitations if they are considering hiring any candidates in New York. Many other states have similar laws limiting how and when employers can request or consider a candidate’s criminal history when hiring.
In order to request a candidate’s credit report, companies in all fifty states must follow the Fair Credit Reporting Act (FCRA), which requires the employer to obtain consent from the candidate in order to obtain the report, and to give the candidate a warning and a copy of the report if the company is going to make a decision about the candidate based on their credit report. In addition to the FCRA, at least ten states have passed laws restricting how companies can use those credit reports in their hiring processes, with more than twenty states considering similar legislation. If obtaining credit reports is part of a company’s recruiting process, the employer must be aware of these limitations and how they differ by state.
After Deciding to Hire in a New State
Employers must take the following steps when onboarding an employee in a new state where the company has not previously had employees:
- Register to do business. Many states require that employers register as a foreign entity or obtain a certificate of authority before conducting business in the new state. Employers may need to research state law to determine if this is a requirement, as many state statutes do not indicate whether having a remote employee qualifies as “doing business.” In some states, this process is not yet accessible online, and mailing the application and receiving the certificate by mail can be a lengthy process, so it’s important to plan ahead. Many states require that a company register to do business in the state before they can obtain tax accounts or proceed with onboarding an employee.
- Register for required tax accounts:
- Income or Payroll Tax | Register with the Department of Revenue for an income tax withholding account for states that have an income tax. Alaska, Washington, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming do not have state income tax.
- Sales and Use Tax | Obtain a sales tax permit or license that complies with the sales tax laws where the employer has a nexus – a physical or economic connection to the state. An employee physically located in a state will constitute a physical nexus so employers must collect and remit sales tax in that state. If a company has new sales in a state where they haven’t previously paid sales tax and hires an employee there, this might generate a significant sales tax cost to the company. Triggering sales tax will require registration and updating the company’s internal invoicing systems.
- Unemployment Insurance | Most states require employers to provide unemployment insurance if they have employees in the state. Different states have different unemployment insurance rates and obligations. Companies should register for unemployment insurance in each state.
- Register with the state Department of Labor. The Personal Responsibility and Work Opportunity Reconciliation Act is a federal law intended to help obtain payment for child support orders and to reduce fraud in government benefits. This act requires employers to report certain data about a new hire to the state within 20 days from the employee’s start date. This is a federal law, but states differ on the registration process and the required time frame of reporting new hires.
- Obtain Workers’ Compensation. Companies should contact their insurance broker to ensure that the company’s Workers’ Compensation coverage includes the new hire.
- Register with FMLA. Some states provide additional leave beyond what is required by federal Family and Medical Leave. In some states that provide paid family or medical leave, employees receive payment from the state instead of from the company while on leave. States with this structure of leave generally withhold a portion of all employees’ compensation and submit it to the state’s leave authority. Companies must register with the state leave authority to set up a paid leave account and indicate how they will submit payments to the state leave authority.
Update Employee Handbooks with New States
With a remote and dispersed workforce, employee handbooks may be more important than ever and more difficult to create because requirements in each state vary widely. Additionally, keeping employee handbooks up-to-date can be challenging, but it is crucial for the protection of a robust business and engaged workers. Employee handbooks must be consistent with state law and with the practices of the business. Companies may want to restructure their handbooks as they expand and take into account the laws of multiple states. Employers generally choose one of four main types of employee handbook structures:
- Universal: one handbook that governs all employees.This approach takes the most generous state law and provides that level of benefits to all employees.
- State-specific: one handbook that has separate state-specific policies. For example, there may be five different jury duty leave policies if the company has employees in five states. As companies expand into multiple states, these handbooks can become very long and confusing for employees. One drawback to this approach is employees can see the benefits provided to other employees that may be more generous than their own benefits.
- Addenda: one handbook with policies from one or two main states and addenda for additional states. One advantage to this type of handbook is that when a company hires an employee in a new state, adding an addendum is relatively easy. However, this approach can be confusing to employees if they have to switch from the handbook to the addenda to see what policies apply to them.
- Multiple: separate handbooks for each state. This allows the employer to specify and focus on the requirements of each state. It is simple to change one state’s handbook when state law changes, but keeping all handbooks current and accessible to all employees can be a monumental task.
Employers should create a plan to keep their employee handbook up to date. Rather than updating sporadically or only in emergencies, it’s important to update employee handbooks on a regular cadence.
Tailor Employment Agreements to New State Laws
States have their own specific parameters that govern employment agreements. When hiring an employee in a new state or when an employee relocates to a new state, employers must update their employment agreements to comply with that state. Robust employment agreements often include non-compete and non-solicitation agreements, non-disclosure agreements, proprietary information and inventions assignments (PIIAs), and arbitration agreements. The laws governing non-compete and non-disclosure agreements are highly state-specific, so it’s important for employers to know how to comply with each law across the country.
In addition to tracking state laws, employers should also keep track of where their employees live and work. Employers should specify the jurisdiction of governing law in their contracts, and consider whether that choice will be recognized by a court. As a general rule, the law that governs employment agreements is the law of the state where the employee is located. This is simple when the employee works either in-person or fully remote. Governing law can get complicated when an employee has a hybrid working environment spanning more than one state. In that case, the employer should decide which state has the strongest connection or “nexus” to that employee and specify the governing law in employee contracts.
Employers should consider these steps as best practices for managing employment agreements in a dispersed workforce:
- Use state-specific employment agreements.
- Keep updated records of employees’ locations.
- Implement a relocation/telecommuting policy that requires the employer’s consent for employees to relocate.
- If the employer approves relocation, execute modified agreements to comply with the law of the state where the employee is currently located.
SixFifty can help! Our Employee Handbook and Employment Agreements toolsets help companies to create customized contracts, policies, and documents that comply with all state and federal employment laws. We are continuously monitoring this dynamic area of the law and updating our tools with changes in real time. We send regular updates explaining how laws have changed, and we even include the recommended language for the handbook and agreements.
We will soon unveil a new tool that will list all considerations for hiring employees in new states. Working with SixFifty is like having a panel of top-tier employment lawyers by your side.
If you are ready to get started or have any questions, schedule a demo with SixFifty today!