Questions

Q&A

What are the most consequential issues that an employer should consider when determining its post-covid-19 remote work policies?

The shift to remote work has fundamentally transformed how employers must approach compliance, creating a complex web of obligations that extend across multiple jurisdictions. For multi-state employers, the decision to implement or continue remote work policies triggers numerous legal, tax, and operational considerations that can expose organisations to significant liability if not properly addressed.

State Income Tax Withholding and Corporate Income and Franchise Tax

One of the most immediate and consequential challenges involves state income tax compliance. When employees work remotely from states different from the employer’s location, this can create nexus, a taxable connection triggering registration and filing requirements in that state. Employers must withhold income tax based on where the employee physically performs work, not where the company is headquartered. This obligation applies even if only one employee works in a given state, and the thresholds vary significantly by jurisdiction.

Beyond payroll taxes, remote employees can trigger corporate income tax or franchise tax nexus for the employer. Having even one employee working remotely in a state may establish sufficient physical presence to subject the business to that state's corporate tax regime. This requires the employer to register, file returns and potentially apportion income to multiple states. States such as California and New York have particularly aggressive nexus enforcement and impose significant penalties for late registration.

Workers’ compensation insurance

Workers’ compensation represents another critical compliance area. Remote employees are generally entitled to the same workers’ compensation coverage as on-site staff, but the determination of which state’s laws apply becomes complex. Most cases require coverage under the law of the state where the employee’s work is “localised”, which is typically where they regularly perform work and are domiciled. However, in inquiry is fact intensive, and different states apply different tests for determining workers’ compensation applicability.

Unemployment insurance

Unemployment insurance obligations shift based on remote work arrangements. The US Department of Labor (US DOL) uses a localisation of work provisions test to determine where wages should be reported and which state’s unemployment tax applies for employees working in multiple states. There are four key principles, one of which includes remote work considerations. The goal of this localisation test is to allocate wage credits to the state where the individual is most likely to become unemployed. This requires careful tracking of where employees actually perform work, as temporary remote arrangements or employee relocations can trigger new registration requirements.

Employment laws

Remote employees are generally subject to the employment laws of the state and sometimes, locality, where they physically work, not where the employer is headquartered. The implications are far-reaching where employment laws are highly decentralised.

Anti-discriminationlaws

Employees will be protected by anti-discrimination statutes of the state where they physically perform their work. This could mean more favourable employee protections than the state where the employer is actually located.

Wage and hour laws

Employers must comply with each state’s (and locality where applicable) varying our laws, including minimum wage, overtime rules, and meal and rest break requirements. State paid leave entitlements and requirements for record-keeping, pay frequency and final wage payments also vary significantly. On 24 August 2020, the US DOL issued Field Assistance Bulletin (FAB) No. 2020-5, which emphasises the importance of having a clear system for reporting time and ensuring remote employees report their time accurately. This tracking should include where an employee is working.

Expense reimbursement

Eleven states plus Washington, DC and Seattle require employers to reimburse employees for certain remote work expenses that are “necessary” business expenses.

Restrictive covenant rules

States’ non-compete laws vary widely.

States’ non-compete laws vary widely and fall into three broad camps: those that ban employment non‑competes outright (eg, California, Oklahoma, North Dakota, Minnesota and now Wyoming with limited exceptions), those that allow them but only above certain earnings thresholds or with added procedural safeguards, and those that remain relatively employer‑friendly with few statutory limits beyond general “reasonableness” tests. Some states also impose industry‑specific bans or carve‑outs (particularly for physicians and other healthcare professionals), while others (such as Florida under its CHOICE Act) create presumptions of enforceability for high‑earning workers. On top of that, several states restrict choice‑of‑law and forum‑selection clauses designed to evade local protections, meaning the law of the employee’s work state often governs even if the contract points elsewhere.

Labour law posting requirements

Federal and state labour law posting requirements extend to remote employees. The US DOL encourages electronic posting for remote workers and requires it when all employees work remotely. However, simply emailing a PDF will not suffice. Posters require “continuous posting” that is easily locatable on frequently accessed platforms such as company intranets.

Many states have even more specific requirements. For example, California permits electronic posting if conspicuously placed where employees would view it. New York requires all labour law postings be available electronically in addition to physical postings. Illinois mandates certain postings be made available to remote workers through regular electronic communication methods. Failure to comply with posting requirements can result in penalties and creates exposure during audits or employee complaints.

Pragmatically speaking, is there a threshold to determine when working remotely (from home or otherwise) requires local rules to apply?

For core employment rules, as soon as an employee is regularly performing work from a location, that state's (and often city's) labour laws generally apply to that work.

If employees voluntarily move away from their main work location, can employers unilaterally impose locally appropriate compensation packages?

Unless otherwise proscribed by employment contracts or collective bargaining agreements, most US private-sector employers may reduce employee compensation subject to compliance with federal and state law, and provided that the process is fair, non-discriminatory and consistent. Reductions in salary are generally permissible under the federal Fair Labor Standards Act and state wage payment laws as long as they:

  • give notice before the work is performed (no retroactive cuts); and
  • do not drop employee pay below applicable minimum wage or required salary thresholds for exempt status under federal or state law.