Hiring Across State Lines? Here’s What Employers Need to Know About Multi-State Compliance

The Complex Landscape of Multi-State Employment and HR Administration

With the rise of remote work, a tight labor market that makes recruitment more competitive, and the natural business drive toward growth, many employers end up expanding their workforce across state lines. In today’s world, this is a scenario that can apply just as easily to smaller businesses as to enterprise-sized organizations that do business in multiple states! As remote work has become more commonplace, even small employers with only a single office can find themselves with far-flung employees across the nation. In fact, studies have found that remote workers are more likely to move to other states (4.3%) compared to on-site workers (2.5%), so employers can find themselves with a multi-state workforce without even expecting it. 

Unfortunately, while expanding across state lines can gain organizations access to more customer and labor markets, it also introduces a complicated web of HR administration and employee management challenges. In these cases, the employer typically must comply with the employment laws of the state(s) where the work is performed, which can mean compliance with multiple and at times contradictory sets of regulatory requirements. 

Consider wage and hour laws, a major area of concern for most employers. According to EY (formerly Ernst & Young), more than half (58%) of HR leaders cite “maintaining multi-state payroll compliance” as their top emerging payroll priority.

Here, compliance can get complicated fast. Different states may have different minimum wage rates, overtime requirements, criteria for defining contractors, and regulations regarding meal and rest breaks. For instance, while the federal minimum wage remains at $7.25 per hour, several states have set higher rates ($16.50 per hour in California and New York and $14 in Florida, for example), and some local jurisdictions have established their own minimum wages that exceed state levels.

State-level payroll tax rates and withholding requirements can also vary. Employers are generally required to withhold state income taxes for the state in which the employee performs their work. However, determining the correct tax jurisdiction can be more complex when employees live in one state and work in another. Some states tax employees based on their state of residence, while others impose withholding based on the work location. Reciprocal agreements between states can simplify the situation—but only sometimes.

Managing Conflicts Between State HR Regulations

Employers operating in multiple states often face direct conflicts between state-specific regulations. Think about a company opening offices in both Texas and California. 

• Minimum Wage and Overtime: Texas adheres to the federal minimum wage of $7.25 per hour, whereas California's minimum wage is significantly higher ($16.50 per hour as of January 1, 2025). Employers must ensure that employees in each state are paid according to their respective minimum wage laws. 
• Meal and Rest Breaks: California mandates meal and rest breaks, requiring a 30-minute unpaid meal break for shifts over five hours and a paid 10-minute rest break for approximately every four hours worked. Texas does not have a state-specific requirement for meal and rest breaks, deferring instead to federal guidelines, which do not mandate these breaks.
• At-Will Employment Restrictions: Both states are at-will employment states, meaning employers can terminate employees without cause. However, California has stricter laws limiting wrongful termination, including protections against discrimination and retaliation that go beyond federal standards. 
• Paid Leave: California requires paid sick leave. Texas does not have a statewide paid sick leave law; in fact, courts have struck down attempts by some Texas cities, like Dallas, to implement local sick leave requirements. 

How to Reconcile Conflicting HR Regulations

Ultimately, it’s up to employers to ensure that their policies align with the specific HR regulations of each jurisdiction where their employees reside. First, establish which jurisdiction’s rules apply. In most cases, it’s where the work is performed. "Most employment-based laws... are applied according to the state in which an individual works," notes the Society for Human Resource Management (SHRM).

If work is performed in multiple states with conflicts between state and local employment laws, employers can try one or more of the following strategies:

1. Apply the Stricter Standard: 

In cases where laws conflict in terms of quantity, many companies simply opt to follow the more stringent law across all locations. For example, applying California’s meal and rest break rules and/or minimum wage to all employees (even in Texas) ensures consistency and mitigates compliance risks.

2. Develop State-Specific Policies

In other cases, it might not be helpful to craft a one-size-fits-all policy. What if an employer in Texas isn’t able to afford to apply California’s minimum wage across their entire workforce? In such cases, employers can create separate employment policies that comply with each state’s laws and identify which employees will be subject to which policies.

3. Rethink Employee Handbooks

Related to the above point, employers may want to make handbooks "a thing of the past … [and] have separate libraries for each state,” Jonathan A. Segal, an attorney with Duane Morris in Philadelphia, told SHRM. While it is necessary to provide structured guidance to workers and administrators, maintaining a single comprehensive handbook for multiple states can be overwhelming.

4. Leverage HR Technology and Expertise: 

HR software can help track compliance requirements in different states, while legal counsel or HR consultants can offer guidance on navigating these complexities. In particular, a Professional Employer Organization (PEO) is superb; it can cost-effectively handle state-specific HR administration and compliance, reducing the burden on internal HR teams.

On that last point: It’s worth noting that PEOs can also manage virtually every task related to HR administration and employee management, including payroll processing, benefits administration, and employee onboarding. This centralized approach reduces the administrative burden on businesses and ensures that all HR processes comply with all relevant state laws—without employers having to lift a finger themselves. 

The Risk of Non-Compliance

Regardless of how employers approach the question, navigating the intricacies of multi-state compliance requires a deep understanding of varying state taxes, labor laws, benefits, and HR regulations. Just remember: It’s not optional. Non-compliance with state-specific HR regulations can lead to severe consequences, including fines, legal action, and reputational damage. The complexities of managing employees across multiple states increase the risk of inadvertently violating state laws, especially when those laws are frequently updated or differ significantly from federal regulations. Employers must remain vigilant and proactive in monitoring and implementing changes to state-specific employment laws.

Partnering with a Professional Employer Organization can provide the necessary expertise and support to navigate this intricate landscape, allowing businesses to focus on growth and success while ensuring compliance with all applicable laws. For more information on how a PEO like CoAdvantage could help you, learn more about our HR Administration services. 

**The information provided on this website is for general informational purposes only and does not constitute legal advice. While we strive to ensure the accuracy and completeness of the information, we make no guarantees about its correctness, completeness, or applicability to your specific circumstances.  Laws and regulations are subject to change, and you should consult a qualified legal professional before making any decisions based on the information provided here.