Many employers have switched their employees to remote work with no foreseeable return date in sight. More than ever, employees are being hired to be permanent remote employees. Those remote employees can work from anywhere. An employee for a New York employer can work from a vacation home in South Carolina. An employee from a New Jersey company can fulfill their dream of moving to California without quitting the job. While working remotely grants a new freedom to employees, it creates compliance issues for employers with multi-state employees.
What does this mean for employers with multi-state employees? Having multi-state employees implicates all types of employee protection laws including disability, worker’s compensation, leave laws, and unemployment issues. The employee protection laws of the state where the employee resides and works typically govern.
Employers with multi-state employees need to be aware of the following compliance concerns:
Federal v. State Law
Federal law protections take precedence whenever the Federal law has a greater standard. Examples of Federal laws that implicate employee protections are the Fair Labor and Standards Act (“FLSA”), Family Medical Leave Act (“FMLA”), and the Families First Coronavirus Response Act” (“FFCRA”).
When a state, county or city regulates something not covered in Federal law, or has a higher standard of protection than Federal law, the employer needs to comply with it, in addition to the all of the provisions of the Federal law.
For example, the federal minimum wage for covered employers is $7.25 under the FLSA. New Jersey’s minimum wage is $11.00. Employers in the state of New Jersey must comply with New Jersey’s minimum wage law rather than the federal minimum wage standard. State law would trump federal law.
Additionally, the FFCRA requires certain employers to provide their employees paid sick leave or paid expanded family and medical leave for specified reasons relating to COVID-19. States sick leave laws may not apply to these specified COVID-19 situations, and thus, employers must comply with the federal law. Federal law would trump state law.
Leaves of Absence
The FMLA entitles employees to take unpaid, job-protected leave for specified family and medical reasons. The FFCRA requires certain employers to provide employees with paid sick leave or expanded FMLA leave for specified reasons relating to COVID-19. While the FFCRA is effective through December 31, 2020, some states have decided to enact permanent paid sick leave and paid family leave laws.
Employers need to be aware that the list of states with or without paid sick leave and paid family leave laws has been changing in the light of the COVID-19 pandemic.
For example, New York now requires certain employers to provide paid sick leave under the New York State Sick Leave (“NYSSL”) and paid family leave under Paid Family Leave (“PFL”). In addition, New York City modified its preexisting Paid Sick and Safe Leave law to not only conform to the New York State law, but to grant even greater protections in light of COVID-19.
Other states with paid sick leave laws include Arizona, California, Connecticut, Maryland, Massachusetts, Maine, Nevada, New Jersey, Oregon, Rhode Island, Vermont, Washington, and Washington D.C. In addition to New York’s PFL, California, Connecticut, Massachusetts, New Jersey, Oregon, Rhode Island, Washington, and Washington D.C. also have paid family leave laws.
Disability
The Americans with Disabilities Act (“ADA”) requires employers to provide accommodations to applicants and employees with disabilities, which may include providing modifications to existing leave policies and providing unpaid leave. The FMLA allows employees to take up to 12 weeks of unpaid leave for treatment of or recovery from serious health conditions.
Some states provide short-term disability programs, such as California, Hawaii, New Jersey, New York, and Rhode Island.
In New York, an employee with an injury or illness not related to their job may be eligible for short-term disability benefits. Employers must provide disability benefits coverage for these employees. The Disability Benefits Law (Article 9 of the WCL) provides for weekly cash benefits to replace, in part, wages lost, for up to 26 weeks.
Bear in mind that while PFL does not replace disability benefits coverage and these two benefits cannot be taken at the same time, an eligible employee can use both benefits to support their needs (i.e., pregnant employees can use short-term disability instead of PFL or use short-term disability then PFL).
Worker’s Compensation Insurance
Every state has its own worker’s compensation laws, which may vary from state to state.
Worker’s compensation provides cash benefits and/or medical care for workers who are injured or become ill as a direct result of their job. Employees who are injured or become ill when working remotely may still be eligible for worker’s compensation. To see what injuries are compensable for remote employees, click here.
Employees may file a claim in (1) the state their work is principally localized; (2) the state where they were injured; (3) the state where they live.
If an employer purchases worker’s compensation insurance in one state while having employees working and/or living in another state, the employer has created a gap of coverage for claims generated by employees. An employer should add those states to their current policy.
Some states such as California, Illinois, New York, and Pennsylvania have severe penalties for not purchasing worker’s compensation.
In California, for example, it is a criminal offense to not provide worker’s compensation for employees, punishable to up to a year in prison and/or a fine up to $10,000. Additionally, the state issues of up to $100,000 against illegally uninsured employers.
Other states, such as Connecticut will issue a stop-work order so that employees cannot work until the employer provides worker’s compensation insurance in addition to imposing a $300 fine per worker per day if there is not proper coverage.
Note that each state may differ in employer requirements, statute of limitations for filing a claim, and the scope of coverage.
Unemployment Insurance
Unemployment insurance is a joint state-federal program that provides cash benefits to eligible workers. Each state administers a separate unemployment insurance program, but all states follow the same guidelines established by federal law.
Employees should file unemployment claims with the state where they worked. If an employee worked in a state other than the one where they now live or they now work in a state where the employer is not, the state unemployment insurance agency where they now live can provide information about how to file an unemployment claim with other states.
Employers must pay a state unemployment tax (“SUTA” tax) and federal unemployment tax (“FUTA” tax). FUTA taxes are employer-only taxes while SUTA taxes are predominately employer paid; however, some states require employees to pay a portion.
In determining which state should unemployment tax dollars if an employee works in more than one state, the DOL has created a set of rules:
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- Localization of Services: Where the employee works majority of the time; or
- Base of Operations: Where the employee has a base of operations, and performs some services; or
- Place of Direction and Control: Where the employee receives direction and control from the employer, and performs some services; or
- Residence: Where the employee resides, and performs some services; or
- Reciprocal Agreements: If the states have reciprocity, employer can choose the state of coverage.
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State Taxes
Employers may be subject to other states’ tax obligations by having remote employees in those states. These tax implications include compliance with employer withholding obligations, payroll taxes, and other additional state tax requirements. Employers need to be aware of these tax consequences to avoid tax penalties, fines, and interest.
Most states require employers to withhold federal, FICA and state taxes from employee wages earned for work performed in that state. If an employee is a resident of one state but works in another and there is no reciprocal agreement (agreement between states that allows employees to only pay income taxes to their resident state), the employer may have to withhold according to the laws of both states. Additionally states are publishing guidance on the “nexus” with states for tax purposes and temporary tax relief. Employers need to pay attention to the guidance published by those particular states in which employees work remotely to determine if the employee’s presence in the state is a sufficient nexus to be liable for state tax obligations.
Some of the tax relief provided by the states is of limited duration. Some states limit the temporary relief to remote work arrangements necessitated by a government lockdown, a physician’s order, or an executive order relating to the pandemic. For example, Massachusetts’s temporary tax relief for corporate income tax will last until the earlier of December 31, 2020 or 90 days after the Massachusetts state of emergency is lifted.
Compensation
Many individual states, such as New York and California, have adopted wage and hour laws and regulations. Employers need to be aware that compliance with just the FLSA will not shield employers from liability for other claims.
Minimum Wage Laws
While the federal minimum wage for 2020 is set at $7.25 per hour, states can provide for a higher minimum wage requirement. For example, states such as California, New York, Connecticut, and New Jersey’s minimum wage laws set minimum wage much higher.
California’s minimum wage is set at $12.00 per hour; Connecticut’s minimum wage is set at $12.00 per hour; and New Jersey’s minimum wage is set at $11.00 per hour.
Note that cities can provide for higher minimum wage. New York has many tiers, based on location. While New York State’s minimum wage is set at $11.80 per hour, New York City’s minimum wage is set at $15.00 per hour for all size businesses.
Rest Periods and Meal Periods
Federal law does not require lunch of coffee breaks. If an employer offers short breaks, federal law considers the breaks as compensable work hours (paid breaks). Meal periods, however, are not work time and not compensable (paid breaks) under federal law.
Some state laws, such as California, require a paid 10-minute rest break for each 4-hour work period. California, Colorado, Illinois, Kentucky, Minnesota, Nevada, Oregon, Vermont, and Washington all have regulations regarding rest periods.
Many states require employers to provide a meal break for employees if their shift exceeds a certain number of consecutive hours.
New York provides for a thirty-minute unpaid meal period for employees who work shifts of more than six hours. California provides for a half an hour meal period, if an employee works for more than five hours.
Conclusion
Employers with employees working remotely in multiple states need to be aware of the many compliance issues that can arise under state law, including but not limited to: worker’s compensation, disability benefits, compensation, state tax implications, wage and hour requirements, minimum wage, unemployment, and leaves of absence. Failure to comply with employee protective laws and state tax obligations can result in monetary penalties and in some cases, criminal implications. Now more than ever, employers need to be aware of and in compliance with the laws of the states in which their employees reside.