Last Updated on November 3, 2023

Hiring Across State Lines Means Multi-State Compliance

These days as an employer, hiring looks different. The world is your oyster, meaning the recruitment pool is nationwide. We are no longer limited by location to find the talent that can help our business to become more successful. However, hiring in a post-pandemic world has many pros and cons and legal risk if you’re not prepared. It’s important to know how to hire across state lines and legally. Here’s what employers should know when having remote employees.

We know you’ve found your perfect candidate in a different state, and you’re ready to hire and get them screened and working PRONTO! This article will help you unpack what you should know regarding screening and tax law considerations.

Let’s talk about screening across state lines

Many states have state-specific laws limiting how and when employers can request or consider a candidate’s criminal history when hiring. Screening reports should adhere to reporting laws by state and report only what is allowed by that state-specific law.

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

Remember that 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 background report. Some states have restrictions on how companies can use those background reports in their hiring processes, in fact, more than twenty states are considering similar legislation. Our lesson here is that If obtaining background reports is part of a company’s recruiting process, the employer must be aware of these limitations and how they differ by state.

One example is the following:
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.

Your remote employee checks out! Let’s onboard!

There are steps that a company must take to ensure compliance when hiring in other states. Here are the proper 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.”

• Register for required tax accounts.
  1. Income or Payroll Tax | Register with the Department of Revenue for an income tax withholding account for states that have an 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 physical or economic connection to the state.
  
• 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.

• Any Other Tax Accounts Your Industry May Require
  

• 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 for 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.

Don’t dismiss ongoing employee management

In addition to setting up your company in these new states, there are some areas that must be managed regularly. Be sure to have the resources to stay compliant with each state’s regulations on an ongoing basis. An experienced HR compliance and administration expert can be a huge benefit here.  

Many states (and even municipalities) are issuing their own regulations to supplement the federal requirements. For example, California calculates overtime hours differently from the federal regulations.

With so many details it’s imperative that you are aware of any specific state requirements that you must abide by.  You’ll want to use an experienced company, such as MyHRConcierge, which provides HR guidance to companies of all sizes throughout all 50 states, so that you won’t leave yourself vulnerable to legal risk.

Remote and On-Site Employees in Multiple States Means Risking Employee Handbook Compliance

As a business owner, conducting business across state lines creates new compliance challenges. Although you may not knowingly be going against the law, not properly handling the setup of your business in another state when it’s legally required could leave you with expensive penalties or leave you unprotected by state laws.

Employee handbooks must be consistent with state law and with the practices of the business within that state. Companies will 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. These laws can change and/or become law quickly so it is important for you to be aware of new laws in each of the states in which you, as a multi-state employer, operate. Rather than updating sporadically or only in emergencies, it’s important to update employee handbooks regularly.

An easy way to ensure compliance with employees in multiple states is to have your employee handbooks professionally reviewed and updated by human resources experts such as MyHRConcierge. 

MyHRConcierge specializes in creating and maintaining employee handbooks that are compliant for multiple states. Our Handbook Monitoring Program includes:

• Review of 50 state labor law additions/additions to determine if any will affect employer policies for those operating in those respective states.
• Monthly, automatic updates to ensure your business is compliant with changing Federal and State regulations including COVID-19 pandemic-created laws and regulations, discrimination policies, and more.

As litigation increases, automatic updates can save your business from big risks.