Remote work has increased exponentially since the 2020 pandemic. While the global health emergency declarations have since been ended, remote work has continued to be a standard in certain industries.
Managing remote teams and employees comes with its own set of challenges, including tax and labor laws. This article will break down the basics of which state and local laws apply to a remote workforce, and how to remain compliant with those laws.
Understanding Nexus and Taxation
What Is Nexus?
In the context of state taxes and regulations, “nexus” refers to the connection between a business and a state that establishes a sufficient presence for the state to require the business to comply with its tax and regulatory laws.
For example, if a business has a physical presence in a state, such as a store or an office, it is considered to have nexus in that state and must comply with the state’s tax and regulatory laws. However, with the rise of remote work, the concept of nexus has become more complex, as businesses may have employees working remotely in states where they have no physical presence.
How Nexus Impacts State Taxation
Taxation is trickier to define when an employer has employees who are working remotely in a state where the employer has no physical presence. This is because the employer may still be required to comply with that state’s tax laws if they have sufficient nexus in the state, based on factors such as the number of remote employees, the amount of sales in the state, or the nature of the business’s activities in the state.
For example, some states have established a “factor presence” standard for determining nexus for income tax purposes, which takes into account factors such as the number of employees, monthly payroll, and sales in the state. If a remote employee is working in a state that uses the factor presence standard and the employer meets the threshold for that state, the employer may be required to pay income tax in that state on the portion of the employee’s income earned while working in that state.
Overall, the concept of nexus is a complex issue that varies by state and can have significant implications for remote workers and their employers. It is important for businesses with remote employees to stay up-to-date on state taxation laws and seek guidance from Human Resources and tax specialists to ensure they are compliant.
State Labor Laws
The application of state labor laws to remote employees depends on several factors, including the location of the employee, the location of the employer, and the specific laws in question.
In general, remote employees are subject to the same state labor laws as in-office employees for the state the company is based in. This includes minimum wage requirements, overtime pay, meal and rest breaks, and anti-discrimination and harassment laws.
How To Stay Compliant With State Labor Laws And Remote Employees
Familiarize yourself with the labor laws of the states where your remote employees reside. This can include minimum wage requirements, overtime pay, meal and rest break requirements, and other regulations that apply to your business.
Develop a comprehensive remote work policy that outlines the expectations, responsibilities, and requirements for remote employees. This policy should also include information on how your business will ensure compliance with state labor laws.
Worker’s Compensation For Remote Employees
Workers’ compensation is a type of insurance that provides benefits to employees who are injured or become ill while performing work-related duties in their working environment. When it comes to remote employees, workers’ compensation coverage can be complex.
To be eligible for workers’ compensation, the remote employee must be an employee of the company and the injury or illness must be work-related. This is more difficult to prove when an employee is working from a home office, and not the actual company location.
Understand The Laws Of Your Company’s Home State
It’s important for employers with remote employees to understand their state’s workers’ compensation laws and how they apply to their remote workers. Employers should also ensure that they have workers’ compensation insurance that covers their remote workers in case of a work-related injury or illness.
Unemployment Insurance For Remote Employees
Remote workers may be eligible for unemployment insurance benefits if they meet the criteria for eligibility established by their state’s unemployment insurance program.
Generally, to qualify for unemployment insurance, the following requirements must be met:
- Employment status: The individual must have been employed by a company that pays into the state’s unemployment insurance fund, and be compliant with the Department of Labor and employment laws.
- Earnings: The individual must have earned a minimum amount of wages during a specific period of time, known as the “base period.” These wages must meet the local minimum wage standards for their state.
- Reason for job separation: The individual must have become unemployed through no fault of their own, such as due to a layoff, reduction in force, or other reasons not related to misconduct.
If a remote worker meets these criteria, they may be eligible for unemployment insurance benefits. However, eligibility requirements can vary by state, and some states may have additional requirements for remote workers, such as having to show that they are actively seeking work in their state of residence.
The Employee’s Responsibility In Understanding Unemployment Insurance
It’s important for remote workers who become unemployed to contact their state’s unemployment insurance agency to determine their eligibility for benefits and to learn about the application process. Employers should also be aware of their state’s unemployment insurance laws and how they apply to remote workers.
State Leave Laws For Remote Employees
State leave laws, such as family medical leave, can vary widely by state and may apply differently to remote employees. However, in general, remote employees are entitled to the same leave benefits as in-office employees if they meet the eligibility criteria established by the state’s leave laws and the Medical Leave Act.
Here are some examples of how state leave laws may vary and apply to remote employees:
- Sick leave: Some states require employers to provide paid sick leave to employees for their own or a family member’s illness. The amount of sick leave, accrual rate, and eligible reasons for leave can vary by state. In general, remote employees are entitled to sick leave benefits if they meet the eligibility requirements established by the state’s sick leave laws.
- Family leave: Many states have family and medical leave laws that provide job-protected leave to employees who need to take time off to care for a family member with a serious health condition or for their own medical condition. The amount of leave, eligible reasons for leave, and job protection requirements can vary by state. In general, remote employees are entitled to family leave benefits if they meet the eligibility requirements established by the state’s family leave laws.
- Domestic violence leave: Some states have domestic violence leave laws that provide job-protected leave to employees who are victims of domestic violence or have a family member who is a victim. The amount of leave and job protection requirements can vary by state. In general, remote employees are entitled to domestic violence leave benefits if they meet the eligibility requirements established by the state’s domestic violence leave laws.
It’s important for employers with remote employees to understand their state’s leave laws and how they apply to their remote workers in compliance with the Labor Standards Act. Employers should also ensure that their remote employees are aware of their rights to leave benefits and how to request leave.
The Role Of Human Resources In Understanding State Employment Laws
If you manage remote employees, it is very important you understand the state laws that apply to those employees. If your company has a human resources team on site, involve them with any hiring, documentation, and management of your remote employees.
If you’re interested in more information on managing remote teams and employees, read this article on the top challenges of managing remote employees (and how to overcome them).