Which State's Wage Laws Apply When Workers Temporarily Relocate?

Introduction

Businesses send workers to live temporarily in other states for a variety of reasons: to visit clients, work on projects or attend trade shows. They may also temporarily relocate employees due to natural disasters, such as the recent hurricanes and wildfires. So which state's employment laws apply when employees are working out of town?

The answer isn't always clear. "Generally, the laws of the state in which the work is being performed are the ones that govern, even when an employee is merely assigned temporarily to work in that state," said Miriam Edelstein, an attorney with Reed Smith in Philadelphia. But there are exceptions, she noted.

It is crucial that employers understand that rules will vary, which means they will need to conduct a state-by-state analysis, said Kim Rives Miers and Andrew Gray, attorneys with Littler in Austin, Texas, in an e-mail to SHRM Online.

[SHRM members-only multistate coverage: Multistate Employer Resources]​

Minimum Wage and Overtime

​In the case of minimum-wage or overtime provisions, there usually is no minimum amount of time an employee must work in a jurisdiction to establish eligibility for state-law protections. The laws in the state where the work is performed will generally prevail.

However, exceptions arise where there is no state minimum-wage or overtime law, Miers and Gray said. Then there would be no state-law protections because none exist, but the relevant employees would still be covered by the federal Fair Labor Standards Act (FLSA).

Some states try to extend their reach beyond their borders by applying their minimum-wage and overtime protections to in-state employees working outside of their resident state. Massachusetts, Pennsylvania, Washington and Wisconsin each have case law that favors extraterritorial coverage, Miers and Gray explained.

Other states, however, such as Arizona, Connecticut, Delaware, Minnesota and Nevada, have case law that disfavors such out-of-state coverage.   

Contract Provisions

​Businesses can try to specify which state's laws will apply to the terms and conditions of employment in individual contracts or collective bargaining agreements. Employers may also address specific conditions that will apply should an employee temporarily relocate out of state, Edelstein said. However, some states—such as California—will not recognize such contract provisions if the terms or conditions afford employees fewer benefits or rights than they would have at home.

Furthermore, workers' compensation benefits and unemployment benefits are governed by the specific requirements of the state in which the work is performed, regardless of where the employees typically work or reside, Edelstein said.

Income Taxes

​There may be a minimum amount of time an employee must work in a state to be subject to that state's income tax, Miers and Gray noted. That minimum can range from 10 to 60 days; however, in some states there is no minimum and even one day working there will subject the employee to that state's income tax.

Some states apply a minimum amount of income to be subject to state income tax. For example, earning more than $33 in Pennsylvania will subject an employee to Pennsylvania income tax, they explained.

Some states have reciprocal agreements with other states regarding taxes. Residents of a state that has a reciprocal agreement with another state will only need to pay the income tax of their resident state. For example, Miers and Gray said, an Alabama resident working in Maryland will only have to pay Alabama income tax.

Puerto Rico

​In the wake of Puerto Rico's devastating hurricanes, some companies have offered to relocate workers from the island to offices in the continental U.S. Federal employment laws, such as the FLSA and Title VII of the Civil Rights Act of 1964, apply to Puerto Rico businesses but, just like in the states, federal law serves as a floor instead of a ceiling.

Puerto Rico has many more employee-friendly laws, such as daily overtime and statutory vacation time. So what happens when Puerto Rico employees relocate stateside?

"Puerto Rico has exemptions for FLSA-covered employees," Miers and Gray said. "So any FLSA-covered employee would only have protections under the law of the state where he or she relocates, or the FLSA."

But compliance can be a little tricky, so employees should seek legal counsel when temporarily transferring employees from Puerto Rico. The Supreme Court of Puerto Rico has held that if Puerto Rico-based employees work for a corporation that does business under the laws of Puerto Rico but perform the majority of their work outside of Puerto Rico, the employees are subject to Puerto Rico's wage and hour laws, said Juan Felipe Santos, an attorney with Jackson Lewis in San Juan, Puerto Rico.

The U.S. District Court for the District of Puerto Rico has held that a Puerto Rico employee assigned to work in Mexico continuously for over two years, but who was based in and paid out of Puerto Rico, was subject to Puerto Rico's employment laws, he added.

Best Practices

Because state laws vary, "the most risk-free way an employer can assign work out of an employee's home state is to comply with the most employee-protective laws of any applicable jurisdiction," Edelstein said.  "For employers whose policies nationalize the most employee-friendly laws, this will be an easy exercise."

But for employers whose policies provide only those protections that each applicable jurisdiction requires, more scrutiny is needed, she added, suggesting that employers consult an employment attorney barred in each applicable jurisdiction.

"Communication is key," Miers and Gray said. "Employers should make sure the appropriate individuals—most commonly human resources and accounts payable personnel—are fully aware of the potential issues and state-specific requirements."

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