Remote work has been all the rage in recent years. Initially, employees were working from home because offices were closed by government mandate. While working from home, employees were usually working in the same town or neighboring suburb as their normal office space. As remote work has become a more permanent part of the white-collar experience, more employees have started to relocate far away from their offices. This is especially true for employees who can perform most or all of their work remotely.
It’s now not uncommon for employees to work full-time from home in a state that’s different from the site of their office. However, this phenomenon can have significant and unexpected consequences for employers. Typically, the laws of the state where an employee is working—not the laws of the state where the employer is headquartered—apply to the employment relationship.
Wage and Hour Pitfalls
The federal minimum wage is $7.25 per hour, but more than half of the states have enacted higher minimum wages. In fact, some minimum wages are more than $20.00 per hour.
Overtime rules also vary slightly from state to state. Hourly employees are typically owed overtime when they work more than 40 hours in a week. Most states follow the Fair Labor Standards Act’s (FLSA) exemption rules when determining whether a salaried employee is exempt from the overtime requirement.
However, some states use different rules that require employers to meet a higher exemption threshold, which might unexpectedly entitle an employee to overtime compensation if the employer isn’t aware of the unique state laws. Some states also require premium pay in other situations, such as when employees meet a certain threshold of hours in a single day or if employees work on Sundays.
Wage payment laws also aren’t uniform. Some states require separated employees to be paid all wages due by the time of their separation, while others require final pay to be made on the next regular payroll date. Penalties for failure to pay on time can be significant.
Some state and local laws now require that employees be given a certain amount of paid time off (PTO) each year; some laws require employees to be paid unused PTO at the end of a calendar year or at the end of employment; and other states allow for the forfeiture of unused PTO. Employers must comply with the laws of the jurisdiction where their employees are working.
Workers’ Compensation Considerations
Although remote employees may be working from the comfort of their own homes, workers’ compensation likely still applies if an employee is injured during the scope of employment. For that reason, employers must take appropriate steps to ensure their home-based employees are covered by their applicable workers’ compensation insurance. In some cases, this may require employers to purchase additional insurance coverage.
Workers’ compensation is governed by state law. Failure to have proper workers’ compensation coverage can leave an employer liable for workplace injuries, including having to directly pay for medical treatment and lost wages. Other criminal and civil penalties may be imposed, as well.
Unemployment Compensation Considerations
If a home-based employee moves to a new state, then it will likely trigger new unemployment reporting obligations. Employers are required to pay unemployment tax to the state government and can be subjected to criminal and civil penalties if they don’t properly report and pay unemployment taxes.
Fortunately, the tests as to whether employees are entitled to unemployment are generally the same because the unemployment program is partially funded by the federal government, which has established certain rules that apply to all states. However, there are some nuances that mean a separated employee may be eligible for benefits in one state but not another.
Best Practices
- Draft and implement a remote work policy.
- Require employees to obtain written permission before they can work remotely.
- Require employees to report any changes to their work location, including changes to their home-work location.
- Conduct an audit to ensure compliance with legal requirements in all applicable jurisdictions, including applicable counties and cities.
- Ensure all required notices are shared with employees.
- Put workers’ compensation carriers and other insurers on notice of where remote employees are working.
- Require employees to designate certain work areas in their home.
- When possible, require employees to work a set schedule with set break periods.
Joseph U. Leonoro is an attorney with Steptoe & Johnson PLLC. He can be reached at joseph.leonoro@steptoe-johnson.com.