The COVID-19 pandemic shifted many employees to remote work and telecommuting. Because of this, many employees, who are no longer tethered to an office space, have moved out-of-state from their initial workspace for personal or financial reasons. In response, many employers are left to figure out what their legal obligations are for their remote employees who are now working out-of-state. While there are a number of concerns with this arrangement, the most significant are local employment laws, workers’ compensation insurance, the employer’s unemployment insurance obligations, and the employer’s potential out-of-state payroll tax obligations. In this article, we will attempt to briefly discuss some of those concerns, although a full discussion is well beyond the scope of this article.
Local Employment Laws
Employees who work remotely are subject to both the laws of the city and state where they are physically located while they perform work on behalf of an employer. Like all good things in life, there are exceptions, which could range from the size of the employer to different requirements for employees who are temporarily located in a state, depending on the state law and conflict of law principles. As such, it is important for employers to familiarize themselves with the state and local employment laws of all jurisdictions where the company has remote employees working. Although this could quickly become a daunting task, it is important because failure to comply with state and local posting requirements, leave entitlements, wage and hour laws, etc., can result in the employer’s liability for lost wages, penalties, noneconomic damages, and attorneys’ fees.
This analysis could result in some very difficult administrative challenges for an employer. For example, one situation that could arise is that in certain states, the employment laws may be more favorable than that of the employee’s usual office location. For example, a private sector employee based in Texas, who would not otherwise be entitled to paid sick leave, may be entitled to paid sick leave if he or she worked remotely in another state. Additionally, wages and hour laws may vary by state and could guarantee employees more generous minimum wage, overtime, and rest and meal break benefits. In those situations, an employer will quickly need to become familiar with both sets of laws and determine how to best implement the new requirements.
Workers’ Compensation Insurance provides benefits for workers who get injured and is generally required for most employers (exceptions apply depending on the state). When an employee crosses state lines to work remotely in another state, the new state’s WCI laws might apply. In that case, if an employer does not carry WCI, and has injured workers, the employer may face criminal and civil penalties, including liability for lost benefits and attorneys’ fees.
Employers need to ensure that they have WCI coverage based on the laws of the state where its employees are located. That decision will be a fact-dependent determination where an employer will have to assess whether an employee’s work is localized. In general, that determination will need to take into consideration whether or not an employee works regularly at the employer’s place of business and the location where an employee spends a substantial part of his or her working time – but of course, it will likely be a different test for each state, and all decisions will become more complex when an employee regularly travels for work.
As you can see, we have just briefly scratched the surface of this topic. If you are an employer with employees working in multiple states, its important to fully understand the laws of each applicable state and work to ensure full compliance. As always, working with a knowledgeable employment attorney is highly suggested.