Whether you're a business that's just about to hire its first new out-of-state employee or a multi-state business that already employs workers in multiple states, we figured we'd create a simple step-by-step resource on the critical steps to hiring an employee that lives (and perhaps also works) and a state that's not the company's home state.
1. Establish whether they're travelling to your office or working from home.
If they're working from your office but live outside the state, you'll probably have to pay state unemployment tax and withhold state income tax for the state in which your office is located. And if your two states don't have a reciprocal tax agreement, the employee might have to pay taxes to both their home state and your business state.
If they're both living and working outside your state, you will most likely need to pay state unemployment tax and withhold state income tax for the state where the employee lives.
2. Check if the employee's resident state have a reciprocal tax agreement with your company's home state.
If it does, that could save you both some money. For example, you might only have to pay state unemployment tax to your home state and withhold state income tax for your employee's resident state if your employee lives in a neighboring state that has a reciprocal tax agreement with your state.
An updated list of states with reciprocal tax agreements can be found here.
And interestingly enough, just twelve days ago we shared news about how New Jersey is ending its reciprocal tax agreement with Pennsylvania, effective 2017.
3. Apply for employer tax accounts.
Once you’ve determined the above two criteria, you may need to apply for employer tax accounts to pay taxes on behalf of the employee. Many states have unique registration requirements, so get in touch with us if you have any questions.
4. Look into worker's compensation insurance.
If you already have a policy in your own state, you probably just need to speak with your representative about adding your employee to the policy.
If you don't already have a policy, you'll have to make sure this new employee's resident state doesn't require them to have worker's compensation insurance. Some states will make you get private insurance through a company, and others include workers’ compensation automatically as a tax included in payroll.
You can find a good breakdown of state-by-state worker's compensation laws here.
BONUS: 4 common tax and accounting issues to consider when expanding your business into multiple states.
If you're doing business under a name that's different from your company's registered legal name, you'll need to setup DBAs in each state. "Doing Business As" names can be registered at the state or county level.
State unemployment funds collect taxes at different rates. It's important that your payroll processor understands these differences and remits payments accordingly.
Businesses must charge sales tax for the states in which they have a physical location. If you have an office, branch office or warehouse in multiple states, you must register with each state's sales tax bureau and collect and pay the appropriate taxes for each state. States also have different regulations regarding specific taxes. For example, some states charge varying amounts for food versus luxury goods. Make sure you review the requirements for the states in which you're doing business and keep accurate records for each.
States can also have differing laws as to when your company must carry different types of insurance to protect workers. Some states set a minimum threshold of two employees or more for different types of business insurance, while others raise that number. Each state's employment commission website provides information on requirements for businesses operating in each state.
If you have any questions about paying out-of-state employees or expanding your business into multiple states, don't you dare hesitate to get in touch with us. Someone from our team would be happy to answer any questions you might have.