It's no secret that many businesses have been able to quickly adapt and take advantage of the remote working trend in recent years. However, this shift has also created challenges when it comes to staying compliant with payroll taxes for remote employees across different states – leading business owners into uncharted territory.
But don't panic - we've got your back! Our six simple steps will help you pave a smoother path while ensuring legal compliance is the top priority as New York companies continue working remotely.
Payroll Taxes for Remote Employees Checklist
1. Register for State Payroll Tax Accounts in the Additional State for Your Remote Employee
You first want to register and obtain state ID numbers for payroll taxes for the new states your employee works. The employee will use their state of residency for withholding taxes, and the employer uses the state where an employee physically works for your employer's payroll tax liabilities.
For example, if an employee loses their job in Arizona, they won't be coming to New York to file for unemployment. Likewise, if they're injured on the job, they won't be filing a claim in another state.
Baron can create a payroll solution for remote workers in other states easily. We can set up state income tax withholding and unemployment tax contributions for all 50 states.
It also could save you money. The state they moved to might not require as harsh employment regulations as New York does on wages like mandatory paid sick leave, minimum wage, or the minimum salary requirement to be considered and exempt from overtime. Additionally, the monies you pay for unemployment insurance might be lower.
2. Get New Hire Paperwork Together for Their New State
Your employer's new state may have different forms or requirements for new hire paperwork. For example, there may be state-specific forms for tax withholding elections and mandated leave protections.
Just as you provide a new hire packet to a New York-based employee, you'll need to do the same for an employee who has made a new state their permanent residence.
Our Human Resources service can provide you with a new hire packet explicitly made for any state. We're happy to connect you with them to get that process started if you need it.
3. Provide Your Employee With the State Employment Law Posters for Their Remote State
In your breakroom at your physical office in New York, you probably have federal and state posters that inform employees of their rights and your obligations under both federal and state law.
If you don't have these posters as required by state law, you can face investigations and fines. They may just seem like a waste of time and effort, but penalties for non-compliance can be as high as $40,000.
But what happens when there's no breakroom to hang employment law posters? How do you meet your poster compliance obligation when an employee works from home in another state?
All states have different state-specific requirements for employment law posters to be provided to employees, which can be managed digitally.
Baron has a service where we can choose which state your employee works in, generate all necessary employment posters for that state, and then send them to your employee electronically, making sure you're legally covered. This service costs $18 per employee per year and is incredibly simple to use.
4. Notify Your Workers' Compensation Carrier of the Move
Each state has its own workers' compensation policy requirements, and they all have different premium rates.
It's essential to notify your workers' compensation carrier right away so they can adjust your policy to allow for a new state's requirements and premiums.
This is critical. If an employee is injured on the job, health insurance and auto insurance may not cover them. It's one of the first questions asked after an accident. An insurance carrier may have paid before asking these questions back in the day, but now, they watch this like a hawk.
More than likely, the workers' compensation premium rates and requirements will be lower in another state than they are in New York, which may save you money.
Your workers' compensation carrier will typically just add a rider to the policy to include another state. You can add riders for any state where you have remote workers.
5. Notify Your Health Insurance Carrier to Ensure Coverage
You'll need to contact your health insurance broker to talk about how to maintain health coverage for your out-of-state employee.
Some plans may only have a local or small regional network of providers that employees can access. And if your employee now lives far from New York State, that won't work for them. If you have an in-network-only health plan and there are no in-network doctors in your employee's new state, both you and your employee are wasting your money.
Depending on what you offer now and what's available in their new state, you may need a different plan for the remote employee.
If you have employees in multiple states, you'll need a national group health plan that has coverage through all 50 states. A best practice for companies with remote workers is to have or switch to a national plan. If you plan to continue the practice of remote work from anywhere, you want to take to your broker about switching to a national plan.
6. Update Your Employee Handbook for the Remote State
We often talk about the necessity of an employee handbook, and we want all employers to update their handbooks annually to account for all the new laws.
When an employee moves to another state, we can add a state-specific addendum to your handbook with the help of our HR service provider. Or you can make and issue state-specific employee handbooks to your staff.
More than likely, their new state doesn't have as many laws as New York does.
There you have it!
These six steps will ensure you're on the up and up when an employee works remotely from another state.
And as always, if you have any questions, we're here to help.
One of our purposes at Baron Payroll is to inform our customers about confusing financial paperwork. Because more knowledge means better decisions, but if you still have questions or want more information on our products or services, you can reach out to us here or email support@baronpayroll.com.
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