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How to Hire Out of State
By VICKY BROWN
These days hiring remote employees has almost become the norm. In fact, some companies don’t even have a central office at all anymore; and others have taken advantage of the remote work bandwagon, and see it as an opportunity to broaden the talent pool available to them.
But hiring employees out of state, comes with its own set of challenges. So in this episode, we’re going to chat about the things you need to keep top of mind when expanding your operations.
What, does that sound too lofty ‘expanding your operations’? Well, take a deep breath, because that is exactly what you are doing. When you hire out of state, you are extending your business operations to that new state. And while that is fun to think about, it also means you are doing business in that new state as well.
Now, as we go through these tips, I’m going to focus on hiring a remote employee, vs. actually opening up a brick and mortar location in another state. But actually, in many ways, the list is similar.
First up, you’ll have to register as an employer in the new state. Each state is slightly different, but usually you can simply go to the employment department website for that state, and they will have instructions. Generally you’ll get an employer number. Now this number is different from your EIN, or even your state business registration number. The employer number is used for things like unemployment, and payroll taxes etc.
Sometimes the state will require an address in the state – so you’ll have to put some thought around how you want to handle that. Do you actually want the employee’s home address listed as your official business address with the state – I would think, no. But then you’ll have to come up with an alternative. Again, fortunately this isn’t a requirement for all states – so you’ll have to read the website very carefully.
“…When you hire out of state, you are extending your business operations to that new state.“
Now another thing to keep in mind is that when you register as an employer, you may be required to register as a business in that state as well. And that may trigger a business tax liability. I know it can feel a bit annoying, but when you hire out of state, you have to mentally get behind the fact that you are actually now doing business in that new state – with all the attendant requirements.
Next, check to see if there are any local or state licenses or permits required for your business. By the way, this is the reason it’s always a good idea to check with your attorney and accountant before you plant your flag in a new state.
You’ll also need to check with your brokers – both your business broker and your employee insurance broker. The first one will make sure your workers compensation, and other business policies are expanded to cover the new state. And depending on the location, you may have to buy a disability insurance policy as well. Not all states have state disability – now to be fair, not all states require that you have disability coverage for employees either. So again, double check.
Your employee insurance broker will give you valuable information about your employee benefits policies. See, if you have an HMO only plan, and there aren’t any HMO locations in the new state – well, that’s going to need to be addressed. And that’s where your broker comes in. She’ll help identify any gaps, and offer solutions for you.
Now on to the fun part – OK, well maybe not exactly fun….payroll and payroll set up.
Talk to your payroll provider or processor, and notify them you will have an employee in a new state.
Now here’s a pro tip – it is never too early to do this notification. So often people wait until the person has started, and they want to give them a paycheck, to tell payroll (or even human resources, for that matter). But by then you are way behind the 8 ball.
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You see, setting up payroll taxes can be a multi level process. There’s setting up with the state, getting the proper id numbers issued (which can take a minute), putting new codes in the payroll system, setting up the payroll tax payment process, and on and on.
But when you wait, then everything gets behind – and most importantly – you’ll end up missing the payroll tax filing (because things are set up yet), and then everyone has to go back and try to retroactively fix things.
And believe me, the various state employment and tax offices aren’t particularly nimble when it comes to retroactively fixing things. Then you end up with notices for failure to pay, or late fees, and you have to try to unravel all that because actually the funds were held, but they weren’t submitted to the state at the time, because the tax payment process wasn’t set up quite yet, yada, yada, yada.
The upshot – you’ll get charged penalties. For no good reason. So, when you even think you might be adding someone in a new state – get the ball rolling right then and there.
And last, but certainly not least – familiarize yourself with the state and local employment laws. What is the minimum wage rate, when does overtime kick in, if you’re a restaurant, how is tip pooling handled – is it even a thing?
Is there a specific frequency required for pay dates? What has to be on the pay stub; is there any type of scheduling restrictions – things like fair scheduling laws? What about meal and rest break requirements? And what are the rules around time off – is there mandatory sick time, what about paid family leave programs. How are other types of paid time off handled – things like vacation, or personal days.
OK – well all that to say – yes, there are quite a number of things to think about.
But on the other hand – hey, congratulations! You’re growing!
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