We all know it has become harder and harder to find employees. For many companies, we turn to casting our recruiting net much wider to attempt to locate remote workers from other states. This decision can help lessen the workload in one area of your business, but it may increase the workload in another area of your business, along with increased taxes and other operating costs.
You may have heard the adage “hire slow, fire fast.” When hiring remote workers in other states, this is especially true. Before you start an out-of-state employee on your payroll, you will likely need to register to do business with the Department of State in that state, create a state income tax withholding account with the Department of Revenue, and create an unemployment insurance account with the Department of Labor. You also need to become familiar with that state’s (and local) laws related to wage and hour rules, sick leave, and termination. Your company may also be required to obtain workers’ compensation insurance in your remote worker’s state. Some states will also require an out-of-state employer to pay and file returns for corporate net income and sales & use taxes. Many of these tasks could take weeks to accomplish, not days, and they should be in place before you start your new employee on payroll.
Once the employee is set up on payroll, you’ll have to create your website logins to pay state and possibly local income tax withholding and file payroll tax returns for the same, as well as tax returns and payments for state unemployment insurance. You’ll want to research due dates for these tax payments and payroll tax return filings.
It should be noted that these rules may not only apply to your new hires, but they could also apply to your experienced staff that have moved to other states during the pandemic and no longer reside where they did pre-pandemic. To make it more complicated, some states allow for a temporary change of address due to the pandemic.
All of this will add quite a bit of work for one of your in-house employees or it may add additional expense from your accounting and legal advisors. Hiring an out-of-state employee should be a well thought out strategy and should not be taken lightly.