Remote work has made it easier than ever for employees to relocate, but when an employee tells you they’re moving to another state, it can raise complex compliance, tax, and HR considerations.
In this article, we’ll take a closer look at some of these considerations, and break down everything you need to know — and do — when an employee makes an interstate move. So let’s jump straight in.
Moving to another state: What employers need to know
Before diving into the logistics, you first need to consider what the employee’s move actually means for your business. While federal laws apply in many cases, US states often have their own labor laws, tax rules, and benefits regulations. And when an employee moves, you have to adhere to those rules — even if you don’t have an office there.
This can mean:
- New state income tax withholding obligations
- Potential unemployment insurance tax liabilities
- Changes to paid leave, wage and hour, or non-compete laws
- Insurance policy updates, especially workers’ comp
Failing to address these changes can lead to fines, penalties, or legal issues, so it’s important to act promptly and thoroughly.
Here’s what you need to do:
1. Confirm the move and timeline
Start by having a formal conversation with your employee to gather key details, such as:
- What’s their exact move date?
- Will their work schedule or hours change?
- Is the move temporary or permanent?
- Do they plan to work from home, a coworking space, or elsewhere?
This information will inform your next steps and help you avoid misunderstandings down the road.
2. Register to do business in the state (if required)
When an employee moves to another state, your company may need to register as an entity in that state to operate there.
Whether this is required depends on several factors, including:
- The state’s specific laws
- The nature of the employee’s work
- The presence of other business activity in that state
To find out, contact the Secretary of State or Department of Revenue in the new state, or consult a legal advisor. If registration is required, you may need to appoint a registered agent and pay an annual fee.
3. Update state and local tax withholding
As mentioned, each state has its own rules for income tax and employer obligations. As a result, you’ll need to:
- Register for state income tax withholding accounts (if applicable)
- Update your payroll system to apply the correct withholding rate
- Collect and file new tax forms (such as a state W-4 equivalent)
- Withhold and remit taxes to the appropriate state agency
In some cases, local or city-level income taxes may also apply.
Important: Don’t assume the employee can “stay on” their old state’s payroll taxes. That can potentially lead to noncompliance in both states.
4. Adjust unemployment insurance contributions (if necessary)
As well as federal unemployment contributions (FUTA), some states require state-level unemployment (SUTA) contributions.
When an employee moves, you may need to:
- Close your unemployment insurance account in the old state (if they’re your only employee there)
- Open a new unemployment insurance account in the new state
- Update your reporting to reflect the new location
Some states have reciprocal agreements or allow “SUTA dumping” protections, so consult your payroll provider for specific guidance.
See also: How do FUTA and SUTA taxes work?
5. Review workers’ compensation and insurance coverage
Workers’ compensation laws are also state-specific, and you may need to:
- Purchase a new workers’ comp policy for the new state, or;
- update your existing policy to include the new location.
If you provide other forms of insurance (such as health, life, or disability), you may also need to double-check whether coverage is affected by the move as some plans have geographic limitations or network restrictions.
6. Update employment agreements and company policies
Moving to a new state may affect the legal enforceability of certain policies or contract terms, such as:
- Non-compete and non-solicitation clauses
- At-will employment status
- Minimum wage or overtime rules
- Leave entitlements (e.g., paid sick leave and family leave)
Update your employment agreement to reflect any changes, and ensure the employee acknowledges them in writing.
7. Reassess compensation (if needed)
While remote work makes geography less of a barrier, some companies adjust salaries based on the employee’s cost of living or local market rates.
To assess whether the move warrants a change in compensation, consider the following:
- Will the employee’s new location have a lower or higher cost of living?
- Are you using a location-based or location-agnostic pay model?
- How will this decision affect equity and morale across your team?
If you do make changes, make sure you are transparent and consistent.
8. Maintain a positive employee experience
Amid all the compliance tasks, don’t forget the human side of the move. Aim to support your employee by:
- Offering flexible hours during their transition
- Helping them understand benefit or policy changes
- Maintaining regular communication and check-ins
- Providing resources for remote collaboration and engagement
Relocation can be stressful, even if it’s voluntary — and a little empathy can go a long way towards retention and productivity.
How to remove all headaches and simplify the process
Following all these steps and managing compliance across multiple states can quickly become overwhelming — especially for smaller teams without dedicated legal or HR departments.
As a result, it’s often advisable to partner with an employment expert when an employee relocates, such as a dedicated employer of record (EOR) provider. What is an EOR?
EOR providers — like Remote — handle multi-state compliance, and help ensure minimal impact on your operations, finances, and HR resources.
In particular, Remote provides several important services to help you manage this transition, such as:
- Automatic employment agreement amendment. When your employee updates their address to reflect the move, a new employment agreement is automatically created that complies with the new state's requirements.
- Tax and benefits management. Remote updates tax documents and benefits providers to align with the new state's requirements.
- Payroll adjustments. Remote manages the necessary payroll changes in line with local tax laws.
An employee moving to another state isn’t just a lifestyle change; it’s a business change for your company. By approaching the move with the right guidance, systems, and support in place, you can stay compliant and continue building a positive employee experience.
To learn more about how Remote simplifies complex HR — and can save you time, money, and resources in the process — speak to one of our friendly experts today.