New hires and current employees alike are asking for more flexibility in where they perform their work—not just at home versus the office but also working remotely from out of state or even out of the country. These requests may be permanent or temporary in nature (for example, temporarily working at a vacation destination for the summer or permanently splitting the workweek or month between states where one works and lives), but they all amount to state employment and tax law compliance issues the employer should be aware of when providing this benefit.
In general, the state in which the work is physically being performed is the governing state for employment laws, including wage and hour laws and required leave laws. Some states won't consider short, temporary stays by employees to be covered work, but others do. Employers will need to abide by each state's requirements to be in compliance.
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What must employers consider when offering a work-from-anywhere policy?
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Let's assume you have an outstanding employee, Terry, who works at your Texas-based company. He also has a debilitating medical condition. Terry realizes life is far too short, so he plans to work for you full time over the next year out of his RV. He is spending summer 2021 in sunny Florida, the fall in Massachusetts to watch the leaves turn, and then the winter with his extended family in New Jersey, beginning after Thanksgiving. Assuming Terry needs medical leave at any point during this journey, is he eligible for FMLA leave? What about state leave laws? Do they apply, too?
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We should start with the health insurance question. Health insurance coverage is typically limited to the plan's network of "preferred" or "in-network" providers. Otherwise, an employee will pay the provider's full rate or an out-of-network rate (if there is any out-of-network coverage at all in the plan) if they see a provider who is not considered "in network." Most health insurance plans only have "preferred" or "in-network" providers located in the state in which the plan was purchased or originated. The good news: all health insurance plans cover emergency services at any hospital in the United States.
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If an employer is contemplating a significant change in the terms of employment for its employees including the option of remote working, a thorough analysis of legal, tax, and employment issues should be undertaken. This analysis should include a review of the compliance requirements in each area along with a cost-benefit analysis before implementing any changes in business strategy and employment policies.
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The COVID-19 pandemic has shifted a number of previously in-person positions to remote work and telecommuting. In the meantime, many employees have moved out of state from their usual office locations for personal or financial reasons. As a result, many employers are left wondering what their legal obligations are for remote employees working out of state. The biggest concerns are local employment laws, workers' compensation insurance, and unemployment insurance obligations.
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The law that applies to a person's work will most likely be the law of the jurisdiction where that person is working – even if the employer is located elsewhere. With limited exceptions of states whose courts have found "extraterritorial application" of their laws, most state legislatures and courts recognize that their power to regulate the work is limited by the state's border. What does that mean for you? It means, if your employees are working in a different jurisdiction, you need to assess and determine what compliance obligations you have in that jurisdiction, from the beginning.
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As employers pivot their workforces back to in-person work in larger numbers, employees are increasingly turning to legal recourse under federal, state, and local law to create headaches for employers who construe leave laws too narrowly or unthoughtfully.
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