In the last quarter of 2021, 69% of the 2.050 employees surveyed by Global Workplace Analytics and Owl Labs reported working remotely during the pandemic. One third of employees expressed a strong preference for continuing to work remotely, including changing jobs if necessary. Clearly with help from technology, working remotely is rapidly becoming the new normal for many employees. In response to employee preferences in a tight labor market, employers are pivoting to incorporate remote work into their business models. The pivot can morph into a legal hurdle, though when an employee’s remote work location is outside the state in which the employer is located (employer’s home state).
Typically, employers must comply with the laws of the jurisdiction in which the employee is located (foreign state). This is particularly true in the context of wage and hour laws which 1) apply immediately and 2) with at least one employee working in a foreign state on an extended or permanent basis. Consequently, employers should definitively identify the state in which the employee is working at the outset of the remote employment relationship to avoid potential penalties under foreign state law.
Process for compliance obligations regarding payment of wages
Wage and hour laws and other laws addressing compensation, such as expense reimbursement and unemployment compensation rules, vary by state and address a wide range of compensation issues. In order to quickly assess differences in employer wage and hour obligations in the employer home state and the foreign state, employers should assess obligations using the following methodology:
- Exempt and non-exempt status. Verify the exempt/non-exempt status of remote out-of-state employees by reviewing the foreign state threshold for the executive, administrative and professional exemption (EAP exemption). Be prepared to increase the income of the out-of-state employee to maintain exempt status if the EAP exemption is higher in the foreign state than in the employer home state. Also note that some states do not have a specific exemption for Highly Compensated Employees;
- Minimum wage rates and required breaks. If the out-of-state employee is non-exempt, verify compliance with the foreign state minimum wage rate; and requirements for overtime, and meal, rest and lactation breaks. State overtime laws can differ from the federal Fair Labor Standards Act (FLSA) overtime rules by expanding the definition of covered employees and adopting different calculations to determine the regular rate of pay. Employers should also be aware of local minimum wage rates that differ from state minimum wage rates. Employers must pay employees the highest applicable rate;
- Payment of wages. Determine and comply with state requirements regarding the frequency and timing of the payment of wages;
- Notice regarding payroll deductions. Determine state notice requirements for employee pay reductions and provide the amount of notice required under state law and in the format required, if any;
- Wages due at termination. In the event of termination of an employee in a foreign state, verify compliance with rules related to payment of wages at the time of termination of employment. The definition of wages that are due at the time of termination can include accrued benefits. If necessary, employers should delay termination to ensure accurate determination of wages owed and timely payment;
- Employee reimbursement of expenses. Federal law requires employers to reimburse employees only if the unreimbursed work-related expenses reduce the employee’s earnings below the minimum wage. Several states, however, require reimbursement of necessary expenses paid by employees that are incurred in connection with their employment. In most states, if an employee chooses to work remotely and employees are not all fully remote, the expenses would not be considered “necessary.” As a best practice, employers should adopt a policy for the types of expenses that are reimbursable and the procedures for submitting expenses.
- Unemployment compensation fund. Workers’ compensation insurance covers employees for work-related injuries, including employees working remotely. Employers with out-of-state employees should ensure their policies cover employees working in foreign states and should comply with any state law that obliges employers to contribute to the state unemployment insurance fund.
What this means to you
Working remotely can mutually benefit employers and employees, if the employer is prepared, understands their compliance obligations in the foreign state and has adopted a remote work policy that defines the remote employment relationship and implements the necessary parameters and processes that protect the employer from unexpected compliance obligations.
Contact us
Our Labor and Employment team can help assess obligations under state law and develop a comprehensive remote work policy. For assistance, contact Tracey O’Brien, Tom Cedoz or your Husch Blackwell attorney.