The legal implications of remote workers to US employers

However, remote employees are subject to the laws of the city and state where they are physically located and perform work, not the state where the employer is located, if different. To avoid potential penalties that may result from noncompliance, employers must take several considerations into account before offering employees the ability to work remotely.

Employers are required to withhold applicable state and local income taxes based primarily on where an employee performs services, meaning their physical location, and sometimes, secondarily, where the employee lives. Some states have reciprocity agreements which permit withholding in a single state, however, less than half of US states have them. Employers must observe complex tax laws and regulations to determine when they are required to withhold income taxes. 

Employees who work remotely are subject to the wage and hour and employment laws of the state where they work immediately.

For example, California and Illinois have specific paid overtime, meal breaks, and rest requirements. Illinois requires employers to provide employees a minimum of 24 hours of rest within every consecutive 7-day period, and employers who violate this law are subject to penalties of up to USD 500 per offense. Some state laws may be seen as more friendly to businesses, and some are more friendly to employees, so employers should consider this fact when allowing employees to work remotely.

It is essential that employers ensure they are compliant with each individual state’s employment and labour laws to avoid penalties. 

Workers’ compensation insurance provides benefits for injured workers and is generally required for most employers, with some limited exceptions depending upon state law. When employees travel across state lines to work remotely in other locations, the other state’s workers’ compensation laws may apply. While some states have reciprocal agreements with other states about when and how they accept out-of-state workers’ compensation insurance, many do not. Further, many states require employers with at least one employee to obtain and maintain workers’ compensation insurance at all times (e.g. Colorado).

Some states also require a business to register with the secretary of state as an ongoing business operation if a worker is working remotely in the state.

This article presents only a fraction of the laws that employers must take into consideration when determining whether or not to allow employees to work remotely. It is imperative for employers to ensure they are compliant with state laws prior to offering remote work to employees.

Alexis Switzer is an Associate attorney practising primarily in the areas of employment and labour, and litigation and dispute resolution. Alexis’ practice includes advising clients on compliance with various employment matters, and drafting employee handbooks and employment policies.