You just made an offer to your ideal candidate. They're talented, experienced, and excited to join your team. There's just one catch: They live and work in a completely different state from where your business operates.
Hiring great talent shouldn’t come with a side of legal headaches, but that’s exactly what can happenwhen your newest team member lives in a different state than your business. Every state has its own rules for taxes, registrations, wage laws, and paid leave. If you don’t set things up correctly from the start, you risk penalties, missed payments, and frustrated employees.
At Whirks, we help hundreds of small and mid-sized businesses stay compliant when they hire across state lines. We understand the challenges, and we know how to help you handle them correctly.
In this article, you’ll learn exactly what changes when you hire someone outside your home state and what steps you need to take to keep your business compliant. By the end, you’ll know how to expand your team without losing sleep over payroll or paperwork.
What Changes When You Hire Out-of-State Employees?
First off, congratulations on hiring a new employee! This is an exciting time for any business owner as each new addition brings a fresh perspective, additional skills, and eager energy to the team.
However, if your new hire works in or lives in a state where you are not currently operating, they also bring additional compliance concerns that need to be addressed.
The moment you hire someone in a new state, your business essentially establishes a presence there. This triggers a series of legal and tax obligations that didn't exist before. You can't simply process payroll the same way you do for employees in your home state and call it a day.
Let's break down what actually changes.
When You Need to Register Your Business in a New State
When you hire someone in a new state, you'll need to register your business with that state's taxing authorities and labor departments. This is a legal requirement in most states.
Registration typically involves:
- State tax registration for withholding employee income taxes
- Unemployment insurance (SUI) registration in the new state
- Workers' compensation coverage that extends to the new state
- State labor law compliance, including posting requirements
The specific registration process varies by state. Some states make it relatively straightforward with online portals. Others require multiple forms and weeks of processing time. And yes, you'll need to do this for every single state where you have employees working.
If you're curious about which states create the most headaches for employers, check out “The 5 Worst States to Hire Remote Employees From.”
Multi-State Payroll Compliance: Tax Implications You Can't Ignore
The tax situation gets complicated fast when you're managing employees across multiple states. You're no longer just dealing with federal taxes. Now, you're juggling different state income tax rates, unemployment insurance rates, and potentially even local taxes.
State Income Tax Withholding
Currently, nine states don't tax earned wages: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
The state where your employee works typically determines which state's income tax you need to withhold, not where your business is headquartered.
Let's say you run a business in Tennessee (no state income tax) but hire someone who works remotely from Arkansas (which does have state income tax). You'll need to withhold Arkansas state income tax from that employee's wages, even though your business has never paid state income tax before.
Understanding Reciprocal Tax Agreements
Some neighboring states have reciprocal tax agreements that can possibly simplify things... slightly. For example, if you have employees who live in one state but physically work in another, these agreements can reduce duplicate tax withholding.
However, with remote work, most employees work from their home state, so these reciprocal agreements typically don't apply. You still need to withhold taxes for the state where they're working (their home).
State Unemployment Insurance (SUI) Considerations
Every state has its own unemployment insurance program with different rates and wage bases. When you hire in a new state, you'll be assigned an SUI rate for that state. And as a new employer in that state, your initial rate might be higher than you're used to paying.
These rates can vary significantly. Your SUI rate in one state might be 2.5%, while another state charges 4% or more. These differences add up when you're calculating the true cost of hiring across multiple states.
For more context on state tax implications, check out this article from our sister company, Patrick Accounting: "What You Need to Know About State Taxes When Hiring Remote Employees."
Minimum Wage and Overtime Rules Vary by State
Federal minimum wage is currently $7.25 per hour, but many states have set their own higher minimum wage requirements. When you hire someone in a new state, you need to comply with that state's minimum wage, not your home state's rate.
As of 2025, minimum wage rates vary dramatically across states. California's minimum wage is $16.50 per hour statewide, while some cities within California require even higher rates. Colorado requires $14.81 per hour, and Connecticut mandates $16.35 per hour. These are just a few examples.
You can't hire a minimum wage employee remotely working in Missouri and pay them the Tennessee rate just because your business is based in Tennessee. You need to pay them according to Missouri law.
Overtime rules can also differ. While federal law requires overtime pay at 1.5 times the regular rate for hours worked over 40 in a week, some states have additional requirements. California, for example, requires overtime pay for hours worked over 8 in a single day, not just over 40 in a week.
Paid Leave Policies Are Expanding Across States
More and more states are passing mandatory paid leave policies that require employers to provide additional time off to employees. If you hire someone in one of these states, you need to comply with their paid leave requirements, even if your business is headquartered in a state without such laws.
States like Oregon, Maine, Delaware, and Rhode Island have implemented or expanded paid family and medical leave programs. These programs often require payroll contributions and provide employees with weeks of paid leave for family or medical reasons.
For instance, Maine's Paid Family and Medical Leave (PFML) program allows employees to take up to 12 weeks of paid leave starting in May 2026, with payroll contributions beginning in January 2025.
You need to know which states have these requirements and make sure your payroll system is set up to handle the contributions and tracking correctly. Missing these requirements can result in penalties and back payments.
Employment Eligibility Verification for Remote Workers
Verifying the employment eligibility of your new remote hire is just as important as it is with any on-site personnel. The U.S. Citizenship and Immigration Services (USCIS) requires employers to complete Form I-9 for all employees, regardless of location.
The tricky part with remote workers is the physical inspection requirement. Section 2 of the Form I-9 requires you to physically examine the employee's original documents proving identity and work authorization. You can't accept photocopies or scanned documents sent via email.
There are a few ways to handle this:
- Have the employee come to your office (if feasible) to complete the I-9 in person.
- Use an authorized representative in the employee's location to physically examine documents.
- Use remote I-9 verification options if you're using certain approved platforms.
Many states also require that you put new hires through the E-Verify system to confirm employment eligibility. Failing to abide by federal and state laws around employment verification can result in significant fines and penalties.
What Your Remote Work Policy Must Include
What does your current employee handbook say about remote workers? If the answer is "nothing" or "I'm not sure," you need to address this before bringing on employees in other states.
Clearly defining your remote work policy and expectations will save you headaches down the road. You need to cover topics like:
- Working hours and availability expectations (especially across time zones)
- Communication channels and response time requirements
- Data security and confidentiality protocols
- Equipment usage and who provides what (laptop, monitor, internet reimbursement)
- Performance metrics and accountability standards
You also need to communicate the employee's rights and responsibilities to make sure they align with your company's overall policies. Remote employees should understand how your company's culture, values, and expectations apply to them, even if they're working from a different state.
How Compensation Strategy Changes with Remote Workers
Apart from state requirements on wage and hour laws, you might also want to consider the salary requirements of a remote worker living in an area with a significantly different cost of living than where your company is headquartered.
While this is best addressed before a new hire comes on board, thinking through these topics will inform future compensation conversations. For example, should an employee living in Manhattan receive the same pay as a worker living in rural Arkansas with all other things being equal?
Many people have differing philosophies on this topic:
- Some companies pay based on the role's market value regardless of location
- Others adjust compensation based on local cost of living
- Still others use a hybrid approach with a base salary plus location adjustments
Nailing down how your organization thinks about location-based compensation will be time well spent. It creates consistency in your hiring approach and helps you budget appropriately for remote positions.
4 Hidden Costs of Hiring in Multiple States
Beyond the obvious payroll costs, hiring remote workers in different states comes with additional expenses that catch many business owners off guard:
- Administrative time and complexity: Managing payroll across multiple states requires more tracking, more reporting, and more attention to detail. Someone needs to stay on top of changing regulations in every state where you have employees.
- Professional fees: You may need to consult with tax professionals, employment attorneys, or HR specialists to make sure you're handling everything correctly.
- Software and systems: Your current payroll system might not handle multi-state payroll efficiently. You may need to upgrade to a more robust platform or add specialized services.
- Registration and filing fees: Each state charges fees for business registration, unemployment insurance, and various compliance filings.
These costs add up. Before you hire in a new state, make sure you've factored in the full picture, not just the employee's salary.
Final Thoughts on Hiring Remote Workers in Other States
Hiring remote employees across state lines doesn’t have to be overwhelming, but it does require a plan. From registering with new state agencies to updating your payroll system and complying with local wage laws, there are critical steps you can’t afford to miss.
You’re likely reading this because you're expanding your team or already managing workers in multiple states. The good news is, now you know what to watch for and how to prepare.
But you don’t have to figure this all out on your own. Working with professionals who specialize in multi-state payroll compliance can help you avoid costly mistakes, stay ahead of changing laws, and onboard remote employees with confidence.
At Whirks, we help growing businesses get the details right, so you can focus on building a team that helps your company thrive, no matter where they live.
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