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.
What's the Biggest Challenge When Hiring Across State Lines?
In this short clip from our Brewed for HR Success webinar, we asked attendees: What's your biggest challenge when hiring across state lines?
The results? More than half of the audience selected "all of the above", pointing to the broad complexity of multi-state hiring. From understanding local tax laws and managing payroll and registration to tracking leave and wage rules and onboarding remote employees, employers face overlapping compliance demands that can quickly become overwhelming.
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 a PEO Helps Employers Manage Leave Compliance
In this clip from our Brewed for HR Success webinar series, Lisa Hodgdon highlights one of the key benefits of partnering with a Professional Employer Organization (PEO): their expert support in managing federal and state leave requirements.
Lisa explains that CoAdvantage's dedicated leave department coordinates directly with both the employer and employee to ensure every step of the process complies with current laws. This includes monitoring new legislation, updating policies as changes occur, and ensuring employees receive the proper notices and benefits they're entitled to under the law.
By having a PEO manage this complex, time-sensitive area, employers can reduce the risk of noncompliance while ensuring their people are treated fairly and consistently.
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.
Why State Specific Handbooks are Essential for Multi-State Compliance
In this Brewed for HR Success webinar clip, Tyler Rasmussen emphasizes the importance of maintaining state-specific employee handbooks and policy supplements, especially for employers expanding into multiple states.
Tyler explains that a well-documented, up-to-date handbook can serve as a critical first line of defense in the event of an audit or litigation. Legal teams often begin by reviewing whether an employer's handbook reflects state and local compliance requirements and whether it was properly distributed to employees.
While even the best handbook isn't an "ultimate shield," the absence of state-specific laws or outdated policies can be viewed as a sign of noncompliance and a significant liability risk.
He advises employers to review and update handbooks at least annually, ensuring they reflect the latest legal changes. Having a reliable knowledge center or compliance partner, such as a PEO, can help employers stay proactive and avoid costly oversights.
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.
Why Employers Turn to a PEO for Multi-State Workforce Management
In our Brewed for HR Success webinar, Tyler Rasmussen of Fisher Phillips explains why so many employers rely on an experienced partners like PEOs when expanding across state lines.
As Tyler notes, "It's very easy to have an employee and think everything is going fine, until it's not." The reality is that multi-state compliance involves layers of laws and frequent updates that can expose employers to risk if not monitored closely.
He advises businesses to leverage every available resource, whether that's a PEO or legal partner, to conduct regular audits, review policies, and stay ahead of evolving state and local regulations. By doing so, businesses can avoid costly liabilities and ensure their HR practices remain compliant as they scale.
Compliance isn't a one-time task, it's an ongoing process that requires expertise, structure, and proactive management.
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.
Need Help Navigating Multi-State Hiring and Compliance?
Expanding your workforce across state lines brings opportunity, but also complexity. From payroll registration and tax setup to state-specific leave, benefits, and handbooks, compliance requirements can add up quick.
CoAdvantage, one of the nation's largest Professional Employer Organization (PEOs) help businesses simplify multi-state hiring through expert HR support, risk management, and compliant payroll administration.
Let our team handle the complexity so you can focus on growth. Fill out the form below to contact us today to learn how we can help your business stay compliant and confident as you scale.
**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.
