Here's Everything You Need to Know as a US Based Remote Company Hiring Remote Employees in Other States
In this quick guide, learn everything you need to have in order and a few pro tips for hiring out-of-state remote employees without putting your business at risk.
What are the rules for hiring out-of-state remote employees?
Despite COVID-19 forcing many businesses to go remote, there are several benefits to expanding your virtual team beyond state lines.
Hiring remote employees lets you quickly tap into a huge talent pool of candidates with exceptional skills, many of whom you may never find if you’re only searching locally.
And if your corporate headquarters (HQ) is located in an expensive area, you may also be able to source and hire this talent for less than your in-state crew.
For customer service purposes, out-of-state remote employees can help extend your customer support hours. A team working in different time zones means your company can offer real-time support no matter where someone lives in the US.
These reasons (and more!) drive many businesses to hire out-of-state remote employees.
But before you can reap these benefits, you’ll need to make sure you’re not putting your business at risk, which is exactly what we’ll cover in this guide.
We’ll show you everything you need to know about hiring out-of-state remote workers so you don’t jeopardize your business with hefty fines, fees, or lawsuits.
5 Considerations for Hiring Remote Employees in Other States
Before you even start the hiring process for out-of-state remote employees, you should understand this one rule:
You must follow the state and local laws of where your employee resides, not where your company HQ is located.
Since the work will be performed in these other states, you’ll need to adhere to the employment rules and regulations in your employees’ states.
So your first step when hiring out-of-state remote employees is to consider the local laws regarding:
1. Application and Salary Questions
Long before you post your job ad, you’ll need to make sure your application complies with state rules concerning what you can ask about.
Some states won’t let you ask about or check criminal backgrounds during the hiring process. Others won’t allow you to ask about someone’s salary history; you can only inquire about salary expectations [*].
Since you may not know where your next new hire will come from, you should stick to the basics during the application and interview stages. Or consult with someone well-versed in these specific nuances before creating your online application and interview questions.
These steps ensure your company doesn’t unintentionally break any rules in the state where a potential new hire may live.
2. Payroll Minimums, Payday Requirements, and Payroll Taxes
Not complying with payroll laws could put your business at risk of significant government fines, or worse, a lawsuit down the line.
To start, you must have a basic understanding of the Fair Labor Standards Act (FLSA). This federal law applies in all 50 states and requires you to pay your employees:
- Equal pay for men and women performing equal work.
- A minimum wage (currently $7.25/hour) for all hours worked up to 40/week.
- Overtime for hours worked in addition to an employee’s 40 weekly hours. The overtime rate equals 1.5x the employee’s regular rate.
You’ll also need to research payday requirements for each state. Do you have to pay employees weekly or bi-weekly? Can you legally pay remote workers monthly?
Then figure out how you’re actually going to pay your employees. Will you send them electronic payments via a specific app, mail out a check, or use the same system your current employees follow?
Payroll taxes are another must-check item you should prepare ahead of time.
Remember, because remote workers are considered employed in the states where they work -- not where your HQ is located -- payroll tax rules from their state apply, not yours.
States with income taxes also have specific rules that must be adhered to. In some cases, you may have to pay income taxes in both the state the employee resides in and your own state [*].
To be safe, it pays to set up your business with a payroll provider or someone who can offer assistance here so you don’t make any costly mistakes with Uncle Sam.
3. Breaks, Time Off, Unemployment, and Workers’ Compensation
You’ll need to consult the state laws for where your employee resides to determine your obligations for:
Breaks: If your remote employees are full-time (that is, working 40 hours per week), they’ll need a certain number of breaks between work hours. Meals, rest, and lactation breaks are all within their legal rights.
Time Off: Vacation days, sick time, and unpaid leaves of absence may also need to be factored in.
Unemployment Taxes: Your business must pay unemployment taxes under the Federal Unemployment Insurance Act (FUTA). But you may also have to pay into State Unemployment Insurance (SUI) in your employee’s home state too. If you don’t, you’ll face severe legal repercussions.
Workers’ Compensation: You’ll need to register for and obtain workers’ compensation -- by getting compensation insurance -- in the state where your employee resides. Skipping this step will leave your business open to liability issues and penalties for non-compliance.
That’s why it’s essential to set clear guidelines for your out-of-state employees regarding their specific job duties and the work hours expected from them. This covers you for both overtime and injuries on the job.
Another way you can protect yourself from workers’ comp claims is to send necessary equipment to your team, such as ergonomic keyboards, desk chairs, and mouse pads with wrist support. These ensure fewer work-related injuries and subsequent claims made against your business.
4. Documents to Convey Employees’ Rights
It’s your responsibility to tell your employees about their legal rights as workers. Just because you don’t have a communal break room to hang up posters with this information doesn’t mean you’re free from explaining them.
You must adjust for and present this information in a remote-friendly alternative.
Some states allow you to send digital copies electronically; others require you to mail hard copies to your virtual team members.
Many remote companies have their out-of-state employees sign these documents, send them back, and provide an extra copy for the employees to keep on hand at home.
You could also post a copy on a community space, such as Google Drive. Then these documents are easy to access and refer back to should the need arise.
Again, you must check your employee’s local laws to make sure you’re following the rules to the letter here.
5. Privacy and Data Protection
Don’t forget to set privacy and data protection standards that benefit both you and your employees.
On top of signing non-disclosure agreements, think about how you’ll ensure secure file transfers between your in-house and remote teams. Will you require strict Wifi standards, company-approved equipment, or proprietary software with high-level encryptions?
A breach in your company’s information or your employee’s personal data could cost your business a small fortune. So make sure this intel stays protected from day one.
Final Thoughts on Hiring Out-of-State Remote Employees
If you were feeling overwhelmed and uneasy about hiring out-of-state remote workers, hopefully this guide provides an easy blueprint to follow and alleviates your worry.
The benefits of doing so -- such as accessing a wider talent pool with exceptional skills, extending your customer support hours, and saving money -- are well worth the extra research to get started.
You can always seek professional help from your legal team or an independent consultant so you don’t accidentally break any labor laws while running your business. Knowing you’re doing everything by the books will give you even more confidence to proceed with the hiring process.
When you’re ready to hire out-of-state remote employees, post a job on our remote job board, and reach the best candidates across the US and beyond.
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