Have You Thought About … How State and Local Income Tax and Employment Laws Apply to Remote Workers During COVID-19? (Part 2)

Brownstein Hyatt Farber Schreck

Brownstein Hyatt Farber Schreck

COVID-19 has drastically changed how and where employees work. Many employees are now temporarily working from their homes or other remote locations. These temporary (and potentially longer-term) telecommuting arrangements raise questions about how employment laws should apply to employees who live and work in different jurisdictions.

For example, think of many large metropolitan areas—e.g., Washington, D.C.‑based employers may have employees resident in Maryland or Virginia; New York City‑based employers may have employees resident in New Jersey, Connecticut or Pennsylvania; and Las Vegas‑based employers may have employees resident in California or Arizona. It also may be that although one state may be the situs for the employer’s operations and the employee’s residence, they may be in different local jurisdictions—e.g., employers with operations in Philadelphia or Los Angeles may have employees resident in Pennsylvania or California, respectively, but outside the city or county limits. And an employer faces similar issues if an employee has temporarily relocated to another state that is neither the state in which the employer’s operations are located nor the employee’s resident state—e.g., to shelter with family or because travel restrictions make it difficult to return home. (Note: Part 1 of this article addresses tax issues; Part 2 addresses other employment issues.)

Essentially, from an employment standpoint, allowing employees to telework for an extended period of time is akin to opening a satellite location in the jurisdiction in which the employee resides, raising a host of employment-related considerations, most of which will be governed by state law. Among them:

  • State and local income tax and other tax issues (see Part 1 of this series);
  • Requirements to register to do business in the state from which the employee is teleworking;
  • Workers’ compensation and liability insurance coverage;
  • Unemployment insurance contributions;
  • Compliance with local ordinances, public health orders and executive orders regarding coronavirus health and safety, workplace protections and other issues;
  • Wage-and-hour law issues, such as minimum wage, daily overtime requirements and meal and rest periods;
  • Employee exemption standards that can vary from state to state (e.g., California applies a “quantitative” test, whereby employees must perform exempt work for more than 50% of their working time, versus many other jurisdictions’ “qualitative” test);
  • Contents of pay stubs, timing of compensation payments during and upon termination of employment and what must be paid out upon termination;
  • Local paid sick leave and other leave laws (e.g., California can have different paid sick leave requirements at the state, county and city level, as do New York and many other jurisdictions);
  • Benefits issues (e.g., the San Francisco Health Care Security Ordinance requires employers with at least 20 employees (if a nonprofit, at least 50 employees) to make quarterly health care expenditure payments of specific amounts to or on behalf of covered employees);
  • Job protections (e.g., reinstatement rights as implemented by various jurisdictions, lawful off-duty conduct statutes and other protected conduct);
  • Expense reimbursement requirements, which may include home office expenses such as phone and internet service, equipment, supplies like ink and paper, and expenses incurred in traveling to the company’s facilities if and when required;
  • Notices to employees and required postings;
  • Enforceability of restrictive covenants, such as noncompetes;
  • Requirements and restrictions with respect to various employment policies;
  • Local WARN Act requirements and federal WARN Act considerations (e.g., where the employee is “counted” for WARN Act trigger purposes);
  • Contents of separation and release agreements;
  • And so on . . .

The bottom line is that there are a myriad of issues employers will need to consider in permitting employees to continue working remotely.

Employers must look to state, county and city requirements to determine what laws will apply to employees residing in—and working remotely from—other jurisdictions. This is a new frontier, and we expect states to address these issues going forward; right now, though, the situation is murky. What employers can expect is that, at some point, “temporary” remote work necessitated by the crisis will no longer be deemed “temporary,” and compliance with local laws will be required.

What can employers do now? First and foremost, ensure that employees are providing timely information about where they are residing while teleworking. Employers then can make a determination—taking into account the factors outlined above, among others—as to whether employees will be permitted to continue teleworking. Employers also can consider whether compensation will remain at the same rate (e.g., employees who normally work in New York City who relocate to an area with a lower cost of living) and whether the same benefits need to be provided (such as commuting allowances). And of course, if the arrangement is planned to be temporary, that should be made clear to employees up front.

As always, employers must keep abreast of new developments; this is a rapidly changing area of law.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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