How to Hire Remote Employees in Another State (Step by Step)

Your new hire lives three states away, and your payroll provider asks for state withholding and unemployment account numbers you’ve never had. That’s often when a small employer learns that, for a remote hire in another state, the employee’s state sets most of the rules. Below are the steps in the order you’d do them, with real state examples, as of October 2026.

Which state’s laws apply when you hire remote employees in another state?

Short answer: A remote employee is mostly covered by the laws of the state where they physically do the work. Unemployment insurance follows the work location under the model rules the Department of Labor sets out in UIPL 20-04, and so do workers’ compensation, new-hire reporting and most wage and leave laws. Income tax is different. It can also involve the state where the employee lives and, under New York’s rule, the state of the office they’re assigned to.

Remote work isn’t a niche arrangement: according to the Bureau of Labor Statistics, 21.9% of employed people teleworked in September 2026. When one of them lives in a different state from their employer, that state’s agencies expect to hear from the employer, and they say so plainly. Washington’s Department of Labor & Industries lists someone who “lives in Washington and works remotely from Washington” as a typical Washington employee. The federal new-hire rules send reports to “the state where the new employees work.”

Occasional trips to your headquarters usually don’t change this. Under the unemployment rules, work in another state that’s “temporary or transitory in nature or consists of isolated transactions” is treated as incidental to the main work location. The Department of Labor’s own telecommuter example is in Step 1.

This is a practical guide, not legal or tax advice. A CPA and an employment lawyer in the employee’s state should confirm your setup.

Step 1: Register as an employer in the employee’s state

Before the first payroll, you normally need two accounts in the employee’s state:

1. A withholding account with the state revenue or tax department, if the state taxes wages.
2. An unemployment insurance account with the state workforce or labor agency, which gives you an account number and an unemployment tax rate.

Deadlines are short. California’s Employment Development Department, for example, says an employer must register within 15 days after it hires employees and pays more than $100 in wages in a calendar quarter. Some payroll providers open state accounts for you and others only file once you’ve opened them, so ask yours who does what.

If you haven’t found the person yet, our remote staffing recruiters source and screen candidates for the role, with a written quote before any work starts, and you make the hire.

Which state’s unemployment law covers the worker?

All state unemployment laws carry the same model “localization of work” provisions, which the Department of Labor reissued with examples in UIPL 20-04. The tests run in order: where the service is localized, then the base of operations, then where it’s directed and controlled, then where the worker lives (each later test counts only if some work happens in that state). For a full-time remote employee, the first test usually settles it.

Example: In the Department of Labor’s own telecommuting example, a New York employee moved to Florida and kept working for the New York employer entirely online. Because all of her work was now done in Florida, her service was localized there, and her wages were reportable to Florida from the day she started telecommuting.

This choice also touches federal unemployment tax (FUTA). For 2025, the IRS lists California as a credit reduction state at 1.2%, because it hasn’t repaid federal unemployment loans. FUTA applies to the first $7,000 of each employee’s wages, so that’s up to $84 extra per California employee, paid with Form 940. Each year’s final credit reductions aren’t set until November 10 of that year. The Department of Labor’s list of potential 2026 reductions names California again, so check that page for the final rate before you file Form 940 for 2026.

How does state income tax withholding work for remote employees?

Short answer: For a remote employee, you generally withhold state income tax for the state where they work, which for a full-time remote hire is usually also where they live. The state revenue departments quoted below set the exceptions: reciprocity agreements and a few special rules change who gets the tax, so check both states’ revenue sites before the first paycheck.

Reciprocity agreements matter when someone lives in one state and works, even part of the week, in another, as hybrid staff near a state line often do. They let that person pay income tax on wages only to their home state. Two examples from the state agencies:

• Pennsylvania has reciprocal agreements with Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia. A resident of one of those states who works in Pennsylvania files Form REV-419 with the employer, which then withholds the home state’s tax instead.
• Illinois doesn’t tax the wages of residents of Iowa, Kentucky, Michigan or Wisconsin who work in Illinois. Those employees give their employer Form IL-W-5-NR so it stops Illinois withholding (Pub-119).

The trap runs the other way, too. New York’s tax department says that if a nonresident’s primary office is in New York, their days telecommuting from another state “are considered days worked in the state,” unless the employer has set up a bona fide employer office at the telecommuting location.

Watch out: If you assign a remote hire to a New York office “on paper” but they work from New Jersey or Connecticut, New York may still tax those wages. Decide whether the role belongs to an office or is fully remote, write it into the offer letter, and have a tax adviser confirm the withholding.

Some cities and counties levy their own income or payroll taxes as well, so check the employee’s local rules along with the state’s.

Step 2: Report the new hire and complete Form I-9

New-hire reporting is a federal requirement run by the states. Per the HHS Office of Child Support Services, you must report each new or rehired employee within 20 days of hire to the state where they work, and some states require it sooner. The report needs seven items: the employee’s name, address, Social Security number and date of hire, plus your name, address and federal EIN.

If you have employees in more than one state, you have a choice. You can report each person to the state where they work, or register with HHS as a multistate employer and send every report to one state where you have employees. That option requires electronic reporting, no more than twice a month. Use the same EIN for new-hire reports and quarterly wage reports, or it can look as if you skipped the reports.

Form I-9 is federal and doesn’t change by state, but a remote hire makes the document check harder. Unless you’re an E-Verify employer using DHS’s video-based alternative procedure, someone has to examine the documents in person. Our guide to remote I-9 verification walks through both routes. Some states add their own rules: since July 1, 2023, Florida has required private employers with 25 or more employees to use E-Verify for new hires.

Step 3: Get workers’ compensation coverage in that state

Your current policy may not cover an employee in a new state. In four states (North Dakota, Ohio, Washington and Wyoming), a private insurer generally can’t sell you the coverage at all; you buy it from the state fund. North Dakota’s workers’ comp agency calls them the country’s four exclusive state funds. Three contrasting examples:

• Washington says its law “does not allow for private workers’ compensation coverage.” If any of your employees are based in Washington, you need a Washington workers’ comp account with L&I, or you must be a certified self-insured employer.
• North Dakota, Ohio and Wyoming also run state funds, so open an account with the state, not your broker.
  • North Dakota’s Workforce Safety & Insurance (WSI) is the sole provider. An out-of-state employer must buy WSI coverage once, for example, an employee earns 25% or more of their annual pay from it for work done in North Dakota.
  • Ohio’s Revised Code 4123.35 has private employers pay premiums into the state insurance fund unless the state’s administrator of workers’ compensation grants them the right to self-insure.
  • Wyoming’s Department of Workforce Services says a business that hires a Wyoming resident must register with it. Employers exempt from the state fund can buy private coverage.
• Texas lets most private employers choose whether to carry coverage. The Texas Department of Insurance says employers who opt out must notify their employees and the Division of Workers’ Compensation.

Elsewhere, ask your broker to add the state to your policy before the start date and get written confirmation. Washington’s agency notes that coverage is decided employee by employee, so one company can need it in several states.

Which state labor laws change when you hire out of state?

Short answer: Hiring out of state can change the minimum wage, paid leave, leave-program payroll deductions, pay frequency, final-pay deadlines and required notices that apply. The federal rules still apply, and the Department of Labor says that where state laws give employees greater protection, “employers must comply with both.”

A few examples show how wide the gap can be:

• Minimum wage. The Department of Labor’s state table, updated July 1, 2026, lists Washington at $17.13 an hour and Pennsylvania at $7.25, the federal rate.
• Paid sick leave. In Washington, all employers must provide paid sick leave of at least one hour for every 40 hours worked, a rule in effect since January 1, 2018.
• Paid prenatal leave. Since January 1, 2025, New York has required private employers to give 20 hours of paid prenatal leave per 52-week period, separate from sick leave.
• Final pay. California requires all wages, including accrued vacation, to be paid immediately when an employee is discharged, and within 72 hours if they quit without giving 72 hours’ notice. Willful late payment can cost a day’s pay for each day late, for up to 30 days (Labor Commissioner FAQ).
• Paid leave and disability insurance contributions. Several states run payroll-funded paid family and medical leave or disability programs, which can mean another account and another deduction from the first paycheck. Four examples:
  • California withholds State Disability Insurance at 1.3% of all wages in 2026, through the same EDD account.
  • Washington’s Paid Family and Medical Leave premium applies to wages up to the Social Security wage base. Employers with fewer than 50 employees in the state don’t owe the employer share.
  • New York requires an employer whose staff work in the state for 30 or more days a year to carry disability and Paid Family Leave coverage. In 2026, employees contribute 0.432% of gross wages, up to $411.91.
  • Minnesota’s Paid Leave premiums started January 1, 2026. Employers pay at least half and send them quarterly (Minn. Stat. 268B.14).
• Job ads. If you advertise the role, the employee’s state may require a pay range in the ad. See pay transparency laws by state.

Required posters change too. For the federal notices it enforces, such as the FLSA and FMLA posters, the Wage and Hour Division’s Field Assistance Bulletin 2020-7 accepts electronic posting only where all employees work exclusively remotely, normally get information electronically and can reach the posting at all times. If you also have an office, keep the paper posters there and add an electronic copy for remote staff.

Do you need to register your business in the employee’s state?

Short answer: Possibly. Having even one remote employee in a state can mean your business is doing business there for tax purposes, and some states expect you to register (often called foreign qualification) with the Secretary of State before transacting business in the state. Whether one remote employee crosses that line depends on the state, so get an attorney’s or CPA’s answer.

California shows both sides. The Franchise Tax Board treats a company as doing business in California if, among other tests, its California payroll exceeds $75,707 (the 2025 figure) or 25% of its total payroll. Separately, the Secretary of State says a business must register before transacting intrastate business there, and it can’t advise you on whether that applies.

For a small company, that 25% test is the one to watch. Picture a five-person business whose one California employee earns more than a quarter of its total payroll: it could meet the test while staying under the dollar threshold.

Does a remote employee create tax nexus?

It can, and it’s a separate question from payroll. Nexus is the link that lets a state require your business to file its business taxes, such as income, franchise or sales tax. Each state sets its own test, so check the employee’s state revenue department site or ask a CPA before the start date. California’s payroll test above is one example of how a state draws that line.

When is a PEO or employer of record the simpler route?

Short answer: A professional employer organization (PEO) or employer of record (EOR) is the simpler route when you’d otherwise open state accounts for just one or two people, or you’re testing a market before committing. Either one takes on much of the registration and payroll work, in exchange for a fee and less direct control of the employment setup.

The two models differ:

• A PEO (professional employer organization) handles payroll administration and tax reporting for its clients, usually for a fee tied to payroll costs, while you direct the work. Some PEOs are certified by the IRS as CPEOs, and the IRS says a CPEO is generally solely liable for federal employment taxes on the wages it pays to your worksite employees.
• An employer of record becomes the worker’s legal employer on paper and typically takes on the state registrations, payroll and compliance, billing you for the service.

Our take: If the out-of-state hire is your first and you don’t expect a second there within a year, a PEO or employer of record is often the faster route. Once you have several people in a state, owning the accounts yourself is usually cheaper and gives you more control. Ask any provider which state registrations are in its name and which are in yours.

To be clear about our role: Digital Storming isn’t a PEO, an employer of record or a law firm. Our remote staffing recruiters find and screen candidates, the same work they already do sourcing CDL and non-CDL drivers for our trucking clients, and you make the hire and run the employment.

What goes on an out-of-state hiring checklist?

Short answer: An out-of-state hiring checklist covers ten tasks, from the state withholding and unemployment accounts to workers’ comp, the new-hire report, Form I-9 and the required notices. Each one has its own agency and deadline, so work through it before the start date.

Timing assumes a full-time employee working from home in a state where you’ve never had staff.

Where to start

1. Confirm where the employee will actually work and whether the role is tied to any office, then write it into the offer letter.
2. Open the withholding and unemployment accounts in that state, and send your payroll provider both numbers before the first pay date.
3. Book the Form I-9 document check and file the new-hire report in the first week.
4. Add the state to your workers’ comp policy and get written confirmation.
5. Ask a CPA or employment lawyer about income tax, foreign qualification and the state’s leave and final-pay rules before you sign off on the setup.

If you still need the right person for the role, our HR and staffing services team recruits for U.S. employers, with a written quote per role before any work starts.