HR and Payroll Compliance for Remote Workers: 6 Critical Considerations

In 2021 and 2022, organizations will permit employees to work remotely more than ever.  While allowing remote work or hybrid remote work may improve employee engagement, it can also create more risk and legal exposure.  Supervising remote employees could trigger risks for compliance with state HR and payroll requirements.  (This is true whether employers are aware of where remote employees are living and working, or if they aren’t.  Even if employees move to a new state without telling their employers, the workplace is still subject to those local HR and payroll regulations.)  Employers with remote or hybrid work environments must consider these six areas of payroll management and HR compliance:

1. Work location:

Employers should know the state and city where everyone on their remote team works.  The “work location” will be where work is performed, not just where the headquarters are located.  Employers must apply for a state income tax ID and an unemployment insurance ID for all states that could count as a “work location.”  (Some cities, such as Philadelphia or New York City, also require both employee and employer to pay additional taxes.)  Employers must provide their payroll providers and other Third Party Administrators (TPA) access for every “work location.”

2. Pay frequency:

Many state laws include requirements for pay frequency.  An employer can avoid running afoul of these laws by checking with an employment law attorney with knowledge of all relevant states and cities, not just the location of the headquarters.

3. State-specific minimum wage requirements:

Employers paying their workers minimum wage must be in compliance with state requirements, which vary.  To ensure employees are paid accurately, organizations should consult with an employment law attorney who is knowledgeable about state-specific requirements.  Underpaid employees may sue or receive back pay, which could be a costly and unexpected expense for employers with remote workers.

4. Overtime laws:

Similar to minimum wage and pay frequency laws, overtime laws vary from state to state, as well.  As noted above, employers should consult with a labor law attorney to ensure compliance.  MP’s HR services can also assist with this task. 

5. Employee classification:

Correctly classifying employees should be a priority for all employers, especially with the current administration.  Per the Fair Labor Standards Act (FLSA), employees are exempt if they meet the exempt duties test and receive salaries above a certain amount.  This amount varies from state to state.  For example, in California, the salary exempt threshold is $54,080.  In New York state, the threshold is $54,080.  The salary exempt threshold may even vary in certain cities, like New York City or San Francisco.

6. Final wage requirements:

If employers fire, lay off, or part ways with an employee, they must be in compliance with state-specific requirements for the payment of final wages.  In some states, this may be the employee’s last day.  In others, it may be within two weeks of termination.  Employers risk legal action and penalties if they don’t comply with relevant laws for the employee’s work location.