What is interstate employment?
Interstate employment refers to a situation in which an employee works for an employer located in one state but performs work in another—or in multiple states. This may apply to remote employees, traveling staff, or businesses with teams across state lines.
For example, if your business is based in Texas but you hire a remote worker in California, that’s an interstate employment arrangement. And while it can expand your talent pool and support flexible work models, it also introduces added complexity around taxes, labor laws, and compliance.
With platforms like Homebase, employers can better manage the documentation and administrative processes needed to hire across state lines while staying compliant.
Why interstate employment matters
As remote and hybrid work become more common, even small businesses are hiring or retaining employees across state borders. Interstate employment affects:
- Tax withholding and unemployment insurance
- Wage and hour compliance
- Leave laws and benefits eligibility
- Payroll registrations and reporting requirements
Failing to follow each state’s rules can result in audits, penalties, or even lawsuits. That’s why employers must understand the obligations that come with hiring across state lines.
Common scenarios that involve interstate employment
- Remote employees working in a different state from the company’s location
- Traveling workers (e.g., consultants, sales reps, or field technicians) who work in multiple states
- Multi-location businesses that operate in two or more states
- Seasonal or part-time staff who live out-of-state during certain periods
- Rehired employees who have moved since their original employment
Even a single employee working in another state may trigger new registration and reporting requirements.
Employer responsibilities in interstate employment
When you hire or retain employees in another state, you must:
1. Register to do business in that state
Most states require employers to register before hiring workers who live or work there—even if your company has no physical location there. This includes:
- State income tax withholding registration
- Unemployment insurance (UI) tax accounts
- Workers’ compensation insurance coverage
- State new hire reporting
2. Follow state-specific wage and labor laws
Each state has its own rules regarding:
- Minimum wage
- Overtime eligibility
- Required breaks and meal periods
- Paid sick leave, family leave, or vacation time
- Final paycheck rules
You must follow the employee’s state laws, not your business’s home state, when determining how they’re paid and protected.
3. Withhold and remit taxes correctly
- You must withhold state income tax in the state where the employee works.
- If your employee splits time between states, nexus and reciprocal agreements may determine which state’s tax applies.
- You'll also need to pay state unemployment tax (SUTA) in the state of employment.
Tax rules can be especially complex when employees move or work in more than one state. Employers should consult tax professionals or use payroll platforms that can manage multi-state compliance.
4. Report new hires to the correct state agency
Each state requires employers to report new hires within a few days of the employee’s start date. This helps track child support orders and reduce unemployment fraud. For remote or out-of-state workers, the report must be submitted to the employee’s home state.
Challenges of managing interstate employment
- Increased paperwork and account setup
- Varying rules and deadlines by state
- Tax remittance complexity for multi-state workers
- Risk of misclassification or labor law violations
- Added insurance or benefits compliance hurdles
For small businesses without dedicated HR or legal departments, these complexities can feel overwhelming. But failing to address them can open the door to state penalties, wage claims, and back taxes.
How Homebase helps with multi-state hiring and onboarding
Homebase simplifies the hiring and onboarding process—whether your team works in one state or across the country. You can:
- Collect digital onboarding paperwork (W-4s, I-9s, and state-specific forms)
- Track hours and wages accurately for employees in different jurisdictions
- Automate payroll tax calculations based on where your team works
- Store compliance documents securely in one place
- Keep employee records organized for audits or labor claims
- Manage team communication and scheduling across locations
Interstate employment doesn’t have to be a headache. With the right systems in place, you can confidently hire the best people—wherever they live.
Explore Homebase Hiring & Onboarding to simplify employee setup, stay compliant with state-specific laws, and grow your team with confidence.