Viewpoint: Employers Need to Know if Workers Relocated During the Pandemic

The COVID-19 pandemic brought many changes to the workplace, and the freedom many employees have to work from anywhere is likely here to stay. But employers—particularly small to midsize employers—might not fully appreciate the risk of inadvertently violating another state's laws when remote workers relocate (particularly if workers relocate to another state without first informing their employer).

Because state employment laws vary widely, legal compliance can quickly become complicated when remote workers move around the country. A regional employer that has only had to comply with one state's employment laws may suddenly have to comply with laws of another state—and potentially the laws of many other states. Do you have employees who previously commuted to work from another state (e.g., New Jersey or Oregon) but who now work remotely in that state? Are you a Texas employer with employees who just moved to California? Did one of your employees decide to become a digital nomad and move to a new state every three months?

In this set of questions and answers, I'll discuss just a few of the complex legal issues that may arise with a mobile remote workforce and offer practical steps for employers to consider when allowing employees to work remotely.

QUESTION: We are a small company with offices in only one state. Do we really need to worry about where our remote employees are physically living and working?  

Absolutely. The law of the state where the employee performs the work typically governs the employment relationship—even if the employer is located somewhere else. Why does that matter? States have a multitude of different meal- and rest-break and wage and hour laws. Some states have income tax and withholding obligations; others do not. Some states prohibit use-it-or-lose-it vacation policies; others permit them. Some states have robust paid-leave laws; others lack them. Some states virtually outlaw noncompete agreements; others do not. On top of it all, employment laws in different states might contradict each other.

QUESTION: Our business has offices only in Nevada (which has no state income tax). An employee working remotely asked about moving to another state to be closer to her parents. Will we need to withhold state income taxes from her wages?

It depends where she is moving. As of July 2021, seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming) have no state income tax. Two others (New Hampshire and Tennessee) do not tax earned wages. Employers elsewhere must withhold and periodically remit income taxes from wages in accordance with the applicable state law. The states with income tax laws have different employer-withholding obligations. An employer's withholding obligation does not necessarily depend on the employee maintaining a full-time residence in the state. Under Minnesota law, for example, the employer must withhold Minnesota income tax if it is withholding federal income tax. Under New York law, there is no income tax withholding unless an employee works more than 14 days in the state per year.

QUESTION: Our business has offices only in Texas (which does not require employers to provide paid family and medical leave). We just learned an employee working remotely moved out of state without telling anyone. He was just hospitalized but did not elect short-term-disability benefits. Do we have to provide paid family and medical leave?

Again, it depends where he moved. As of July 2021, six states (California, Massachusetts, New Jersey, New York, Rhode Island and Washington) and the District of Columbia have paid family and medical leave (PFML) programs in effect. Four more states (Colorado, Connecticut, New Hampshire and Oregon) have enacted programs not yet in effect. Eligibility for PFML in Massachusetts, for example, does not depend on how long the employee has worked for the company. The employee need only earn $5,400 during the prior 12-month period. Employers must also withhold pay from Massachusetts employee paychecks to fund the state PFML benefit. So not only could the employee be eligible for PFML, but the business might also have to pay any (unpaid) PFML premiums as a penalty for not withholding them from the employee's pay.

QUESTION: Our business has offices only in Florida. We have a remote, salaried-exempt employee who earns $52,000 a year; she moved to California six months ago without telling anyone. The employee just contacted HR about unpaid overtime last month. Is that employee really eligible for overtime?

Potentially, yes. As of July 2021, several states have minimum annual salary requirements that are much higher than the federal standard for the executive, administrative and professional exemptions from overtime pay (the so-called white-collar exemptions). The minimum salary requirement for the white-collar exemptions in California is $54,080 for employers with 25 employees or less ($58,240 for employers with more than 25 employees). So the exempt employee who relocated to California would likely be eligible for overtime if the company did not increase her compensation (to at least $54,080 or $58,240—depending on the employer's size). It is important to remember that an employee who is exempt from overtime pay in one state might not be exempt in another. Likewise, an employee who is exempt from overtime pay under federal law might not be exempt under some states' wage and hour laws.

Tips for Employers

To stay ahead of legal landmines, employers with remote workers (or those that plan to allow employees to work remotely) should keep track of where employees actually live and work. Ignorance is not a defense against violating the law. Employers should frequently check in with remote workers. Additionally, proactive employers should consider using remote-work agreements and updating their handbooks with a policy that requires remote workers get permission before moving out of state.

Michael J. Lombardino is an attorney with Reed Smith in Houston.

[Want to learn more? Join us at the SHRM Annual Conference & Expo 2021, taking place Sept. 9-12 in Las Vegas and virtually.]