Out of State Worker Considerations

While it now seems like ages ago, the beginning of the COVID-19 pandemic forced many Americans to temporarily relocate to be with, or care for, family members. As months have passed, what began as temporary relocations, in many cases, have turned into permanent changes. This scenario has manifested inside countless organizations, causing chaos in determining new compliance, tax, and reporting obligations. Although Federal tax considerations do not change, each state sets its own requirements as to what constitutes an employee and when an employer must comply with state and local regulations.

To best address these considerations, employers should approach each relocation scenario individually on a case-by-case basis and review the requirements of the given state and municipality.

Payroll Considerations

Employment Taxes. In addition to federal employment taxes such as federal income tax, Social Security and Medicare, and federal unemployment tax, employers with employees in certain states and/or municipalities, may be required to remit additional taxes such as state unemployment and municipal-level occupational privilege taxes. The corresponding tax accounts would need to be established by the employer in applicable states.

Income Tax. If an employee works or resides in a state for more than a temporary period, an employer is expected to withhold applicable income tax for the given state. If withholding of state income tax is required, an employer is generally also required to register with the Secretary of State and report all new employees in said state.

Operational Considerations

Workers Compensation Insurance (WC). When an existing employee moves to, or an employer hires a new employee, in a new state, the employer is generally required to secure WC in said state. However, each state sets its own requirements as to how many employees an employer must have in the state before WC is required. For example, Colorado, Arizona, and Utah, with few exceptions, require all employers to carry WC. Employers in Wyoming, or that do business in Wyoming, are required to obtain WC coverage through the Wyoming Worker’s Safety and Compensation Division.

As mentioned previously, this scenario is new to many organizations and poses additional compliance and operational challenges. If facing a scenario as described above, please don’t hesitate to contact Employers Council for guidance or assistance.