It had been said that “the future of work is remote.” The COVID-19 pandemic may make that happen sooner rather than later. Email, video conferencing, online access, and cell phones are changing the nature of office work. With advents in technology – remote work, flex work, telecommute work, or whatever-you-want-to-call-it work – working outside of the traditional workspace continues to trend grow.
With such workplace changes comes the responsibility of ensuring that you report and cover your employees appropriately for unemployment. Below are scenarios that we’ve seen among our 501(c) Agencies Trust members that you may need to plan for if your employees work in another place, in whole or in part.
Employees can file for unemployment in any state they choose
Did you know that an unemployment claim can be filed in any state, such as a person’s state of residence rather than the state where they worked? The caveat is that, regardless of which state the claim is filed in, the claim will be governed by the unemployment regulations of the state in which they worked (the state in which the wages were reported). You might receive an out of state or “interstate claim” if someone files for unemployment in a state that is different from the state where they worked for you.
For example, an employer in Rhode Island might have employees who travel in from Massachusetts or Connecticut and later file for unemployment in either of those states. In those cases, the employees would be filing interstate claims. The employees can certainly do that, but the rules governing the claim will be Rhode Island’s.
The takeaway is that if you are an employer with employees who commute into your state, and you receive a claim from another state.
Adding a new office in another state
At some point your organization may consider expanding to an additional location in another state to help you serve a wider range of the community.
When you add an office in another state, you may need to register as an employer in that state, and your employees working there may be subject to that state’s payroll, taxes, and unemployment rules rather than the rules of your home office. Before you establish the new office, you’ll want to determine how many employees will be working in that state. You’ll also want to confirm that the new location will be reported under your federal employer identification number (FEIN).
Every state has its own rules about what number of employees makes you an “employer” in that state and whether those employees are subject to unemployment coverage. If the employees are subject to unemployment in the new state and your organization reimburses unemployment, you’ll want to consider whether it is more beneficial for you to pay state unemployment insurance tax in that state, or to add that state to your reimbursing program.
Employee resides in one state and works in another vs. partial remote work from another state
In some geographical areas, it’s common to have an employee who lives in one state but works in another nearby state (e.g. the Tri-state area, Washington and Oregon, Illinois, and the surrounding D.C. area). Each state has its own rules about what deems you an “employer” in that state, and therefore whether you have responsibility for unemployment in the state where the employee remotely works.
Usually an employer must report wages in the state where the employee conducts their work. If an employee works entirely in one state (such as where your office is located), it tends to be clear-cut that your state governs the employee for payroll, taxes, and unemployment. But as remote work across state lines increases, the line starts to blur about which state’s rules govern aspects of your employee.
In another example we’ve seen, an employee worked part of the week from the Oregon office and worked the rest of the week from home in Washington. Again, each state has its own rules about taxes and unemployment coverage. Therefore, if you can prepare for your team’s changes in advance, you’ll circumvent having to make the change down the line and retroactively fixing all of your past wage reporting or tax coverages.
In the multi-state case mentioned above, and generally speaking, your best proactive steps are to:
- Contact your unemployment claims partner, if you work with an organization like 501(c) Agencies Trust. They will be able to provide strategic options to better control the claims costs of out-of-state employee.
- Utilize the expertise of your Human Resource department to address questions or issues stemming from your organizational changes.
- Contact your State’s employer tax department and/or business registration office to ensure you comply with all state requirements and to confirm that your employees are being covered and reported correctly. Your state’s tax and labor office contact information is usually available online.
- Contact your payroll provider, if you have one, to find out about your wage reporting requirements and implications.