How to Hire Out of State Employees With Ease
Are you considering expanding your US workforce and want to know how to hire out-of-state employees to reach a wider talent pool? We understand why.
Hiring out-of-state employees can help you access more qualified candidates for your job roles. The popularity of remote work and employees relocating to low-income tax states have also amplified the number of companies that hire remote employees in different states.
However, each state has its own employment laws so hiring in multiple states can become complicated. Fortunately, this guide will walk you through key areas you’ll need to tackle to hire out-of-state employees successfully.
1) Know the Types of Employee Classifications to Hire Out of State
Before you hire out of state you need to be aware of the type of engagement you’ll have with the worker. Are they going to be working directly for your company or will they just be completing a short project, such as designing a website?
If they’re going to be working directly for you for an extended period of time, will they be performing work similar to that of your current employees? Will you offer them employee benefits? If so, according to classification laws, you must pay them as a W-2 employee.
What does it mean to employ workers under a W-2 contract?
When a worker is employed under a W-2 contract, they’ll have access to your benefits and you’ll be responsible for all employment-related matters.
If the worker is completing a project-based task you may be able to simply engage them for the project either as a Corporation (C2C) or as a 1099. We advise that anytime you engage with a worker, not as a W2, you have a robust classification process to protect your company from liability and penalties from misclassification.
Tip: Knowing whether your worker is a W-2 or 1099 is an important step if you are hiring out of state, get familiar with the types of employee classifications in this infographic.
2) Job Postings to Find Candidates Out of State
Once you know the type of employee you need to hire, it’s time to start your search. Utilize US job boards to hire out-of-state employees and mark the location as remote to capture a wider talent pool.
Why not narrow down your search to states or cities that have high-quality talent for the sector you're recruiting in? Perhaps, you could find more qualified IT professionals in upcoming tech hubs like North Carolina, or creative talent in New York?
Make sure your job postings are clear about the location of the position and remote work options. But beware...
Understand legal requirements when you hire out-of-state
If you’re hiring employees in a different state, your job posts must be compliant with federal, state, and local legislation. Reevaluate your hiring process to ensure you’re compliant with:
Nondiscrimination or Equal Employment Opportunity (EEO) Regulations
Ban the Box and Fair Hiring Legislation – Some states prohibit you from asking about a candidate’s criminal history before extending a job offer.
Background Checks, References, & Drug Tests – Each state has different laws on these items.
Employment verification – Use of e-verify for Form 1-9 differs per state
Research additional legal employment considerations in the state you’re hiring in
Tip: Familiarize yourself with varying US employment laws before you hire out-of-state employees.
Wage and hour laws differ per state
State laws regarding wages, working hours, breaks, and more can vary dramatically. Some states legally require you to be transparent and display the salary in job posts. So, when you plan to hire out-of-state employees - either know what area you’re targeting and ensure you’re compliant with the labor laws, or cast a wide net for remote talent, and learn the employment regulations of the state where your new employee will work.
Tip: Display the salary range and benefits in your job posting. It is not only legally required in certain states, but some candidates won’t even apply if the benefits are not advertised.
3) Register Your Business in States You Plan to Hire
If you’re ready to hire out-of-state employees, be careful before you pay them directly, You will most likely trigger a Nexus – which requires you to register in to do business in a state for taxation purposes.
As payroll is taxed, you’ll be required to file your company in every state where you employ workers and be fully registered prior to running payroll, and manage tax returns there.
The US Small Business Administration lists in detail how you can register your business in the states you plan to hire in, which all have different application processes.
But beware - Registering your business to hire out-of-state employees comes with annual costs, filings, and audits that you’ll need to be prepared for. This will vary state by state.
Tip: You may be able to avoid setting up an entity in every state if you use an employer of record to compliantly payroll your out-of-state employees. However, you must be careful of what factors can trigger a permanent establishment.
4) Ensure You Have Insurances to Hire Out of State Employees
General Insurances
Your general liability and professional liability coverage will often only cover your on-site workers, You’ll need to review your insurance policies to make sure that your off-site out-of-state employees are also covered under this.
It’s essential to have adequate insurance for your business model and that you are aware of the increased costs which may occur when you hire out-of-state employees
Workers Compensation Insurance
Every worker you engage is required to be covered by workers compensation. Workers compensation (WC) is a state-by-state coverage, each one manages it differently so you must do your research according to the state you want to engage your worker in.
Some states have monopolistic coverage and you can go directly to the state, but most will require you to go through the usual process of obtaining this from an underwriter.
To hire out-of-state employees it’s a good idea to approach your current carrier to see if they can write you a nationwide policy or add the new state to your policy.
You will often see an increased WC cost when you hire out-of-state employees. This is because you appear as an ‘unknown’ employer and therefore will be given a higher modification rating until you develop your own experience rating.
These two characteristics work together to make up the rate that you pay for this insurance coverage. If you’re working outside of an office-based environment, you may have difficulty finding an underwriter as they normally want higher payroll volumes to make up for the risk of adding a new state.
Don’t be alarmed, you can always go directly to the state risk pool, and from there, an underwriter is required to write you a policy – once again this often just means an increased cost base.
Tip: Read a breakdown of workers compensation regulations by state here.
5) Simplify Payroll When You Hire Out of State Employees
Like every other step when you hire out-of-state employees - payroll processing, record keeping, and withholding tax can vary from state to state. You’ll need to know payroll compliance in each place your employees reside.
This is where PGC’s USA payroll services truly shines. Managing payroll and ensuring compliance with state-specific tax and labor laws can be a complex task.
We strongly recommend working with a US Employer of Record like PGC, who can help you manage the new and unfamiliar payroll deductions when you hire out-of-state employees.
If you decide to payroll an out-of-state employee alone, you’ll be given a SUTA/SUI rating based on your operating experience in that state. If this is your first hire in that state, you’ll be considered an unknown employer and therefore generally start off in an average tax bracket.
Major considerations if you payroll out-of-state employees alone include:
Minimum wage – There is a federal minimum wage and each state can set its own rate, which may be less, equal, or greater. You need to comply with the higher wage rate.
Income taxes – Calculating and withholding income taxes according to the IRS and rates in the state you are employing in.
Working out other legally required salary deductions - Social security taxes, 401(k) contributions, health benefits, federal unemployment tax, etc.
Payroll schedule - Each state has different requirements for payroll schedules. For example, in some states, you can pay workers monthly based on their job descriptions or if they’re receiving commission. Some states require weekly, biweekly, or semimonthly payroll.
Paystubs – Some states require employers to give their employees pay stubs, this can also vary by state on whether they need to receive electronic or paper stubs.
Final pay – When an employee is terminated or quits, you are required to give them final pay. You must submit final payrolls in line with state requirements as deadlines differ.
Tip: PGC handles payroll, tax withholdings, and compliance, so you can focus on what matters most – growing your business.
6) Advertise US Employee Benefits
Having great employee benefits in the US is a hallmark of standing out as a great employer and is a big selling point in your job postings. Most compliance on benefits is federally mandated and required dependent on how many hours your employee works. There is a good chance that how you currently manage your benefits would apply when you hire out-of-state employees.
Speak with your carrier that currently manages your benefit plans to explore if your out of state employees will be covered. Certain states have separate requirements on how benefits must be administered and which benefits must be offered.
For example, certain employers in New York must offer commuter benefits.If you’re a small business, you may want to review your benefits as some benefit providers have great coverage in certain cities and not others.
Some healthcare providers may have good in-network coverage focused on the city that you are headquartered, but their specialty may not be in having a strong network in your new state of operation. Therefore, it is important to do your research surrounding benefits before you hire out of state employees.
Tip: Highlight your employee benefit plans in your job advertisements when hiring out of state – Benefits are often a deciding factor on whether a candidate accepts a job offer.
7) Follow State Employment Compliance
Employment compliance is a complicated area especially when you hire in multiple states with different laws. We strongly advise speaking to your legal counsel and HR support team to make sure you get employment compliance right.
These are the main aspects that you’ll see that vary from state to state:
Employment Agreements - Different states have different requirements for wording in employment agreements. At PGC for example. we have multiple employment agreements that have been put together according to the state’s specific requirements and issue the relevant ones accordingly. This includes aspects such as:
Paid sick leave - Some states have a statewide policy while others have multiple cities with their own policy. To stay compliant, consult the state and local legislation on where you plan to hire out-of-state employees.
FLSA exemption – Are your new employees going to fall under the same FLSA exemption as your current ones do? Places like California have a higher salary threshold someone is required to meet in order to fall under this same exemption.
Overtime - If workers are entitled to overtime it will vary from state to state. Some states require payment over a certain number of hours daily and others work it out based on the weekly total. Always comply with the state employment laws where your employee is based.
Non-competes - Different states see non-competes differently. For instance, in some states, they don’t see non-competes as viable and there could be a liability if you were to include this.
8) Onboarding Out-of-State Employees
Once you've found the perfect candidate, and have got all the background work in place to compliantly hire out-of-state employees, it’s time to start the onboarding process.
Typical steps when onboarding employees include:
Setting up a remote worker’s computer
Ensuring access to work systems
Training schedule on company/sector processes
Mandatory state training – Some areas require employees to receive training in health and safety and workplace harassment.
Compliance paperwork - The I-9
You’ll need to consider some of the compliance paperwork such as the I-9 as when you hire out-of-state employees you won’t be able to visually identify their ID yourself. You may want to consider using a remote agent or authorized agent to facilitate this.
Remember, this has to be completed by the third day of employment or there is liability on your company.
Additional Considerations Before You Hire Out-of-State Employees
Engaging a worker in a new state represents a growth opportunity for your company but the challenges aren’t only regarding compliance. When you hire out-of-state employees, don’t forget to build a strong online company culture and encourage engagement between teams.
Ask yourself:
Do you need a new office in the state your employee will be working in or will they be working remotely?
If they are working remotely – How will you make them feel like they are part of a team? Will all their induction training take place online or will you make travel arrangements to train them in person?
Has the out-of-state employee received all the tools and equipment they need to succeed remotely in their role?
Do you have a remote working policy in place that they are aware of?
How will you navigate communication across different time zones?
Can your HR team tackle the compliance and payroll requirements that come with hiring out-of-state employees or do you need extra support?
How PGC Can Help You Hire Out of State Employees?
Don’t let the varying employment compliance laws in the US stop you from tapping into a larger talent pool.
If you want to hire an employee in a new state and the above processes seem too complex, you can simply source and hire the right worker, and PGC can handle the employment back office taxes in accordance with state and federal laws.
We become the employer of record and your out of state employees will fall under our insurances, benefits, payroll including our SUTA/SUI – ultimately saving you money and time.
If you want to discuss how to hire out of state employees in more detail, schedule a 1-1 with one of our friendly US expansion consultants who are happy to help.
Disclaimer: The information provided here does not, and is not intended to, constitute legal advice. Instead, the information and content available are for general informational purposes only.