Hiring remotely is a game-changer for growing businesses, but it also introduces a hidden layer of compliance that many business owners don’t see coming.
If you’re planning to bring on an employee who lives in a state where your business isn’t currently registered, there are a few key steps you’ll need to take to stay compliant with payroll and tax regulations. Here’s what happens behind the scenes when you hire across state lines.
1. Register Your Business in the New State
Even if you don’t have a physical office in the new state, hiring a remote employee there often qualifies as “doing business.” This typically means you’ll need to:
- Register as a foreign entity with that state’s Secretary of State
- Appoint a registered agent who resides in that state
Each state has its own rules and timelines, so check with the state’s business registration office to ensure you’re set up properly.
2. Set Up Payroll Tax Accounts
To run payroll legally in a new state, you’ll likely need:
- A State Withholding Tax Account (if the state has income tax)
- A State Unemployment Insurance (SUI) Account
These accounts allow you to withhold and remit taxes appropriately for your new employee.
3. Comply With Local Employment Laws
Employment laws can vary widely by state and even by city. Make sure you understand and comply with:
- State-specific minimum wage and overtime rules
- Paid sick leave laws
- New hire reporting requirements
- Workers’ compensation coverage mandates
Staying on top of these rules helps avoid costly penalties and builds a strong foundation for a positive employee experience.
4. Update Your Payroll System
Once your new accounts are set up, update your payroll system to reflect the new state’s requirements. This ensures:
- Proper tax withholdings
- Accurate paycheck calculations
- Legal compliance with wage and hour laws
If you’re using payroll software, make sure it supports multi-state payroll functionality.
5. File New Hire Reports
Most states require you to report new hires within a set time frame (often within 20 days). This helps state agencies track employment for child support and other purposes.
Some payroll providers handle this for you, but it’s always best to confirm it’s being done.
6. Review Workers’ Compensation Requirements
Even if you have just one employee in a new state, you may be required to carry a separate workers’ comp policy there.
Contact your insurance provider to determine what’s required—and get new coverage if necessary.
Don’t Go It Alone
Hiring across state lines is doable, but the setup needs to be done right to avoid payroll errors, penalties, or legal headaches.
If you’re expanding your team and need help managing the compliance side of hiring in a new state, I’d love to support you. Let’s make sure your systems are set up for success.
