why it’s complicated for your employer to let you work from another state

by Alison Green on April 14, 2016

Two letters on a similar theme:

1. My boss says that to work remotely, I’d need to become a contractor

I have been working for the same employer for 11 years with a great performance history. I recently asked if I can work remotely as I am moving out of state.

My boss is indicating because our company is not registered to do business in this other state I would have to convert to a contractor. We have many employees that work remotely from other states. It feels odd that this is the path I would need to take. Is this fishy or legit?

It’s not fishy that they don’t want to register to do business in a whole new state. That can be an expensive undertaking and, depending on the state, it can subject them to a whole host of different employment laws (hi, California).

However, you can’t just convert to independent contractor status without changing some fundamental things about your role. Whether someone is treated as an employee or contractor isn’t just up to the employer’s preference; it’s controlled by factors laid out by the IRS here. It’s possible that your manager is proposing changing your role so that it complies with those regulations, or it’s possible that she doesn’t realize that she would need to, or it’s possible that she figures you’ll be fine with ignoring the law on this since it would benefit you in some ways (lots of people in your shoes would be okay with that, but it’s a risky thing for your employer to count on because at any point you could change your mind and get them in trouble).

Keep in mind, too, that as a contractor you’d be responsible for your own payroll taxes, which means you’d be taking home less money at the end of the day, unless your employer was willing to pay you more money to cancel that out.

2. I’m already working from another state, and I’m worried we’re doing it wrong

I work for a very small Florida business that does not have an HR person due to the small size. Recently, I relocated to California for my husband’s new job. I was able to work out an arrangement with my employer where I work remotely and pay out of pocket for any travel to the office, likely a quarterly trip. I feel that is a fair arrangement, given that he is allowing me to work remotely.

But because we don’t have an HR department, we failed to think through the implications of having an employee in California, such as an increase in workmen’s comp insurance. According to a coworker, my boss does not want to pay the increased rates and is considering having me work as a contractor in order to avoid that. I know if I agree to become a contractor, I will not be eligible for unemployment insurance should my boss decide to terminate the long-distance arrangement. I have been hesitant to bring up this topic because the coworker disclosed the information to me in private. And in the meantime, the company has not updated my address in payroll, so I am not paying into payroll taxes, etc. for the state of California.

My boss avoids conflict and unpleasant discussions and typically does not do anything until forced to, but I would like to resolve this soon because I don’t want to be penalized by the state further down the road for not paying California taxes. I am debating whether to raise the subject and suggest that I pay the increase in the workmen’s comp, etc. as a fair trade for allowing me to work remotely. I would really appreciate your perspective on this situation and how to arrive at a fair arrangement for both my employer and me. (As an FYI, please note that my health insurance is provided through my husband’s company so I do not utilize my company’s health plan.)

I want to keep this job because I do enjoy the work, I like the occasional travel element and also being able to work from home, and the pay is significantly higher than what I would earn for the same job where we now live, even after deducting the travel and other costs.

Well, you’ve touched on one of the issues with your boss’s possible plan — the fact that you wouldn’t be eligible for unemployment benefits if you lost your job. You’d also be responsible for paying your own payroll taxes (which is why most contractors charge a much higher rate than employees do for the same work), and you wouldn’t get paid time off (unless you specifically negotiated that, but it would be fairly unusual; typically independent contractors don’t get benefits at all). And, as with the letter above, you can’t legally convert to independent contractor status without changing some fundamental things about your role.

On your employer’s side, in addition to the added expense of workers comp insurance in a new state, they’d have the burden of figuring out and complying with a whole new state’s employment laws, and California’s are not known to be the most simple or the most employer-friendly. To give you just a few examples:

  • As an employee in Florida, your employer is not required to pay out any accrued vacation time when you leave your job. But as an employee in California, not only would your employer be required to pay accrued vacation time when you leave, but they aren’t allowed you to prevent you from rolling over hours (so if they only allow employees to roll over X hours to the next year, they’d have to drop that policy for you).
  • If you’re non-exempt, in Florida you need to be paid overtime for any hours over 40 that you work in a week. In California, you’ll need to be paid overtime for any hours over eight that you work in a day as well.
  •  If you’re exempt from overtime pay in Florida, you might not not be exempt in California. To be exempt under federal law, your primary duties must meet various tests to show that you qualify under the “executive,” “administrative,” or “professional” exemptions. But in California, your employer must show that you spend more than half your time on the duties that meet those tests (a subtle difference, but one that could change your exemption). Also, if you work in software or design and you’re exempt under federal law, your salary may not be high enough to qualify you as exempt under California law (they have a higher salary threshold for those professions).
  • California law requires that different information be provided on your pay stub than Florida requires, and has monetary penalties for not complying.

I’d bet money that your employer doesn’t realize most of this, since most small employers outside of California don’t. You might figure that it’s not a big deal since you’re not going to report them for any of this stuff, since it’s in your interests to be able to work remotely. But it’s really, really not in your employer’s best interest to just turn a blind eye to the legal differences, because no one can predict the future and it’s possible that it will indeed pose a problem for them at some point. (For example, let’s say you get unfairly fired, and you’re treated horribly in the process. You might quickly change your mind about not turning them in for what would likely be multiple legal violations.)

So, where does that leave you? Well, given all of this, it really might make sense to convert to a contractor status, change the nature of the role so that it complies with contractor regulations (if that’s possible; depending on the nature of the work, it may not be), and negotiate a higher rate of pay to cover your increased tax burden (and you could point out to your employer that they’ll be saving on payroll taxes and benefits). But if you stay an employee, I’d make sure your employer realizes all the legal ramifications of that; it’s better to be up-front about it now than to have it cause issues later. Plus, if this stuff is a deal-breaker for them, it’s better to figure that out now than to be blindsided by it later once you’ve gotten comfortable with the situation.

And if you can’t get them to even change your payroll address, I’d take that as a pretty telling indicator that this isn’t likely to work out in the long run.

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{ 73 comments }

{ 73 comments… read them below }

  1. Joseph*

    #2: If they haven’t seriously thought through the business implications (which I assume would have direct penalties and costs to the business for violations), I can’t imagine they’ve thought through everything else that comes with having a remote employee – three time zones away no less.

    That general idea would be far more worrying to me than any single specific item. Seems like a recipe for a lot of issues.

    1. Vicki*

      The OP in #2 is already a remote employee, so the 3 times zones isn’t an issue. They’ve already worked that out.

    2. Crabby PM*

      There are entire enterprise organizations that don’t have offices and the entire workforce works from multiple timezones. It’s really not a thing.

  2. Terra*

    OP2 IANAL but I wouldn’t worry about getting in trouble for not paying your CA payroll taxes so long as you file them correctly at the end of the year. There are lots of people who are contractors/self-employed who don’t pay any payroll tax until the end of the year so it shouldn’t be considered unusual in anyway.

    2. sunny-dee*

      Yeah, that’s not true. You have to pay quarterly for your estimated taxes. If you underpay, there’s an additional penalty, as AAM says.

    3. Vicki*

      When y’all say “Payroll taxes”, are we talking self-employment taxes? That’s only for 1099 contractors.

      OP, if your company really wants you to be a “contractor” have them set you up as a W-2 employee of one of the many many staffing companies that handle this for precisely the reasons you’ve listed in your letter. (ATR International, Aerotek, Adecco, Kimco, …)

  3. Cheddar2.0*

    Ah, California. The land of why-is-this-so-different?! I love living here. My husband’s company (German, with people all around the world) recently switched people to a 100% travel schedule – except those in California because the overtime/time off between shifts/other labor laws made it incredibly expensive and complicated.

    1. Mike*

      I love California’s worker protections but sometimes it does get in the way. Like, the inability to flex hours between days (i.e. I worked 10 hours today I’ll come in 2 hours later tomorrow (or even 3 for the time and a half issue)).

      1. Vicki*

        Oh, we can do flex hours. If we have sensible managers who don’t mind how we fill in the time card as long as the filed timecard matches the correct hours and the total is under 40.

        I’ve done that many times. This is a manager / policy / technical problem, not a California problem.

        1. doreen*

          That’s where Alison’s line about “it’s a risky thing for your employer to count on” comes in. Those “sensible” managers are taking a real risk that someone will keep records of the actual hours they worked and later make a claim for the overtime they were entitled to- perhaps even saying they were directed to record 8 hours each day no matter how many hours were worked. I recently found out someone I supervise was sending herself an email just before she left each night at 7 or 8 pm, even though she put 6pm on her timesheet. Working the hour or two extra could have been because she isn’t productive enough during her scheduled hours, but sending the email could only have been to keep a record of the unauthorized overtime she wasn’t recording on her time sheet. And there’s no reason to keep such a record unless you might use it someday.

          1. Ask a Manager* Post author

            Exactly — that’s really not sensible of those managers at all, because they’re laying the groundwork for someone disgruntled to file a wage claim someday.

            Vicki, what you’re describing is illegal!

            1. Veronica*

              This is only true for non-exempt employees, right? It’s not clear from Vicki’s comments if she’s referring to exempt or non-exempt. I’m in CA and exempt and we definitely use flex hours (there’s no timesheet).

        2. Mike*

          We do it as well but the reality is that we are skirting the law which causes a lot of risks for the organization . CA has some pretty strict rules about OT and compensatory time off and don’t give a lot (or any) of room for the employee and employer to arrange alternatives.

  4. Jerry Vandesic*

    Have the vacation accrual rules changed recently in CA? Last time I had an employee in CA I was told that rules allowed for up to 18 months of accrued vacation, but it could be capped at that point.

    1. DMC*

      You can cap vacation accrual, but you cannot make a use it or lose it policy. Meaning you get to keep whatever you’ve accrued but not used (and it has to be paid out upon termination), but you cannot actually lose vacation you’ve already accrued (for example, by not having what you already accrued roll over to the next year).

      2. Kyrielle*

        Yeah, I was baffled by this because $PreviousJob was headquartered in California and capped vacation accrual – accrual stopped after 160 hours for most of us and 240 hours for California employees, a difference we were told was due to California law. (And boy, was that difference…appreciated by those not in California.)

      3. Ann Cognito*

        In CA you can cap accrual, and although there’s no actual law, the advice is that it should be at least twice the annual vacation allowance. Once it’s earned, you can’t take it away, as it’s a form of wages, hence the no “use it or lose it” vacation law in CA; it has to roll-over from year to year.

      4. Ask a Manager* Post author

        DMC is right; you can cap accrual but you can’t prevent rolling over hours from year to the next. I went on memory and got it wrong. I’ll correct it in the post. (I did not rely on memory for the rest, so that should all be correct.)

    2. Veronica*

      I’m in CA and my company doesn’t let us rollover accrued vacation, they pay us for any unused vacation time at the end of the year.

  5. Judy*

    I’m wondering if in the first case, they’re talking about converting to an employee of a contract employer. They don’t say “independent contractor”, and at least in engineering, it’s common to have employees working for you that are W2 employees of a business that contracts to supply specific types of employees. It’s similar to a temp agency, but for technical employees.

    1. Honks*

      Came here to say this! I would love more information about this phenomenon, because I was such a contractor for a year (and may be again soon…) and it was totally ungoogleable!

      2. Paige Turner*

        I’m in a situation like this, and I think for federal/government contracting at least, I’m what you’d call a subcontractor. This might be a more googleable term :)

      3. t*

        Are you referring to employee leasing? (I think that’s what it’s called) Where the employees are actually employees of a different company and so HR and payroll and such are handled by the contractor? I don’t have a lot of familiarity with this either, but I’ve heard of it being an easier way for some small employers to handle this stuff. I would also love to learn more about how prevalent it is and the pros and cons for employees.

      4. Vicki*

        Look at Addecco, ATR, Robert Half, Aerotek, Premier Staffing (pstaffing.com), http://www.net-temps.com/staffing-agencies/CA-California/1/

        Search for “technical staffing agencies” (or just search for contract positions in Indeed.com or Dice. The firms that post will often say “you’ll be a W-2 employee of Blahblah Inc).

        It’s harder to get a 1099 contract than a W2 “contract”.

    2. EmployeeABC*

      My boss is indicating 1099 contract. He’s still trying to figure out what rate & duration I would do this. He also has to get Finance approval as his objective is to hire a replacement & I transition/train said person. He’s not sure his staffing budget can support that.

      Company has around 500 employees, with 4 offices in different states, & various remote workers in other states.

      In all this I will need to determine if the rate & duration is worth the effort for no benefits, paying my own taxes & paying my own workmans comp ins.

      1. Vicki*

        If you go 1099, you will be required to pay both halves of your Social Security tax. Which means that you _need_ to have your hourly rate go up.

        Talk to a tax advisor. Do NOT agree to anything without talking to a tax advisor!

    3. Stephanie*

      Only thing with that, I wonder if they would be able to keep the same benefits. I know contract agencies sometimes give benefits, but I wonder if they would differ from the parent company.

    5. Solidus Pilcrow*

      I had a position like you described for 16 years, but I never really knew how to succinctly describe it! I was an exempt employee of the contracting company with full benefits and vacation. I tended to work at a client site and the contracting company invoiced them for my services. I rather liked it because I didn’t have to get mired in internal politics or conform to their vacation policies. For example, the last client I worked for had a use it or loose it vacation policy. My contracting company allowed us to roll over up to 200 hours and then paid out the rest.

    6. Vicki*

      Yes, this.
      This is how “contract” programmers, technical writers, and similar jobs are handled, e.g. in Silicon Valley (and probably most other places). We used to call these “body shops”. Now we call them “Staffing agencies”.

      You’re not really a contractor. You’re a W2 employee of a staffing company. The staffing company is contracted with the other company to handle all of the messy taxes and avoid the issues inherent with “OMG 1099 contractors onsite Aieeeeeee!). My spouse, who WANTS to be a 1099 contractor and file a schedule C, hates all of this with great passion.

      Sometimes you get benefits (vacation, holidays) sometimes not. Some have the ability to buy medical insurance.

  6. Apollo Warbucks*

    Could OP2 even pay the increased insurance? I thought California had laws against passing on business expenses to employees.

  7. Tammy*

    The other complication with having employees in other states is that having an employee working in another state may create “nexus” for the company in that state and require them to charge/remit sales tax to customers in that state. Depending on the nature of the business, having nexus in multiple states for sales tax purposes can be a significant complication from an accounting standpoint, and the business may rationally choose that they don’t want to deal with the hassle.

  8. Kate*

    I’m the Florida transplant to California who authored the 2nd letter. All of the comments and advice are very helpful — thank you! I am leaning toward becoming a contractor as that seems the simplest path. I’m realizing I probably need to consult with an employment lawyer in California to figure all of this out. I did some online searches and there is a ton of information but it seems vague or contradictory. If anyone knows of useful websites providing info becoming a contractor, it would be appreciated. Thank you!

    1. Ann Cognito*

      I downloaded a book to my Kindle a while back, which I found really useful: “Getting Started as an Independent Computer Consultant” by Mitch Paioff. Even though I’m not a computer consultant, apart from the parts of the book that talked about that (not a huge amount), the rest of the information was very relevant to any kind of consulting. It’s really well laid-out, not too long, so a very quick, informative read.

    2. INTP*

      I don’t have specific information, but make sure that you request a significant raise. My experience is that contractors make 25-50% more than W2 employees in the same role. (Despite California’s laws, illegally deeming someone a contractor for tax reasons is very common, for some reason. My recruiting agency had clients that would offer a role at $X/hour as a W2 employee or $Y/hr as a 1099 contractor, and some people preferred to be a contractor at a higher wage even though the role didn’t change at all and it was illegal.)

      1. Jerry Vandesic*

        A good starting point is to essentially double your rate when you become a contractor. If you made $50K per year as an employee, you should propose a rate of $50 per hour (which works out to approximately $100K if you put in 40 hour weeks). Just remember that you will need to pay your own insurance, as well as self-employment taxes.

    3. Vicki*

      At least in San Mateo County, our Bar Association has a program where someone can get a half-hour consultation with a lawyer for a low price (it was $25 several years ago). That can give you enough information to know if you need more time, or to talk with someone else.

      Also, a tax advisor may be able to provide more info than an employment lawyer. It’s the tax situation that gets iffy more than anything else, especially if the IRS decides that you’re not really a contactor after all (its one of those things where it’s not actually your choice.)

    4. Miss Herring*

      I am a CPA in NYS. I am not hugely familiar with CA and FL tax law, but I have a general understanding of how taxes work for states.

      You mentioned that your employer has not changed your residency for taxes. This is BAD, for you and the employer.

      For you:
      – FL has no income tax for individuals, so you are not accustomed to paying state tax. CA does have income tax. Your employer should be withholding it from your paycheck and remitting it to CA on your behalf. I would advise you to look at your expected wages for the portion of the year you will have lived in CA and use an online calculator (or sift through tax forms) to get an idea of how much you will owe on your CA wages. Start putting it away now in your savings account, as this could result in a nasty tax bill at year-end. Alternatively, possibly your husband could have HIS state tax withholdings increased through his employer (assuming you file jointly), but it could be a pain to get it right.
      – When you file your taxes for 2016, most likely you will need to file as a part-year resident of California. Your employer should issue you a W-2 that separates out your wages for the two states. I fear that, if it is not correct in the company’s payroll system now, it is likely that your W-2 at year-end will be incorrect unless someone in payroll takes steps to fix it. It will then need to be amended (as I can’t see your company, which hasn’t even changed your residency state yet, doing this properly the first time). Even if you switch to a contractor at some point during the year, you will still need that multi-state W-2! I don’t think you can retroactively get W-2 wages changed to 1099 pay.
      – NYS, like CA, is known for having more worker protections than other states. NYS has rules for determining employee vs. contractor status that are MORE stringently in favor of employee classification than the federal standards. I would think this is a possibility for CA as well, so your employer can’t just use the federal checklist to make sure that you are okay switching to contractor status.
      – IF all the contractor stuff works out, I would suggest you talk to a California CPA (or someone familiar with CA employment) to help you calculate an hourly rate. You will want to work in FICA and Medicare taxes that your employer was previously paying, disability insurance, and possible other CA insurances and taxes of which I am unaware. Please don’t just guess at it, as you may find yourself coming up short once you have paid any employer-end taxes and insurances that CA requires. Also, look at possibly setting up a home office in your CA house/apartment, and talk to a CA CPA about how to make it qualify and what expenses you might be able to deduct as a contractor (such as those flights to and from FL that you are covering). Save all your documentation and receipts!

      For this one part-year residency year of 2016, I would suggest that you have a California-area CPA at least look over your taxes before you file by April 2017. Besides W-2 income (and possible 1099 income and business expenses), you will also have to allocate any investment income you have. If you normally do your own taxes, you can go back to that next year, but just have someone professional (NOT H&R Block) check it for 2016. Part-year residency is a pain and easy to mess up in a way that looks like it makes sense but has you paying the wrong amount of taxes.

      For your employer:
      – As others have mentioned, having an employee in CA creates nexus. If CA is like most other states, that means for all CA sales your employer will need to collect sales tax AND will now need to file a corporate income tax return for CA that reports all CA revenue and pays taxes on a portion of income.
      – Your employer needs to register with CA for payroll taxes pretty much yesterday. If you moved in March, it is likely that they are already late on Q1 forms and will owe penalties. I would not advise them pretending that you still reside in FL.
      – It is TOO LATE to go back and change these things and pretend you were a FL resident up until you went to CA to be a contractor. Your employer must file these forms. I do not know how much trouble they are in for being late on this.

  9. Lauren*

    Alison, I am confused. In response to this question you said “◾… as an employee in California, not only would your employer be required to pay accrued vacation time when you leave, but they aren’t permitted to put any cap on its accrual … .”

    I work for two-year unionized college in California and while I have no doubt they can and do limit our vacation accrual time to two-years’ worth I wonder why you said otherwise. Are there variations in the rule?

  10. Noah*

    “If you’re non-exempt, in Florida you need to be paid overtime for any hours over 40 that you work in a week. In California, you’ll need to be paid overtime for any hours over eight that you work in a day.”

    Actually, in California, you need to be paid overtime for any hours over eight in a day OR over 40 in a week. If you work six eight-hour days, you’re entitled to overtime for every hour on the sixth day.

    1. Ask a Manager* Post author

      Right. Is that not clear from the post? I thought it was (federal law will always require it for over 40 in a week) but I will edit that too.

  11. Lisa*

    I worked from home in NJ for a NYC-based company. I was hired as remote because they didn’t have any space for me in the office. I asked them to deduct NJ taxes since I was based there – they refused. I even called ADP, who did our payroll, and they said I had to pay NY tax. It got complicated at tax time, and even more when they closed their US office and I had to collect NY unemployment.

    1. Paige Turner*

      In the DC-Maryland-Virginia area, this is also common. I live in Maryland and work for a Virginia-based company at a Maryland client site, and for another company in DC. My taxes are all over the place. When I was still a student and a Florida resident, I paid DC taxes on all my paychecks, then got a big refund when I filed my taxes. I miss that!

      1. Sparrow*

        Oh, that gives me flashbacks. There was one year I lived in DC and had jobs in both DC and Maryland…and then I moved to Oregon to work there! I didn’t even attempt my own taxes that year and just called in a favor from my CPA brother.

      2. Aunt Vixen*

        I live in Maryland and work in DC. When I took the job, I filled in my DC W-4 correctly to say I am exempt from DC taxes because I would like my state taxes withheld for Maryland, please. W-2 comes at tax time and all my state taxes have been withheld for DC. Sigh. So my filing that year involved getting a refund from DC and owing that whole refund to Maryland. A few e-mails and phone calls and a faxed form later, I believed it had been resolved (mind you, this was in March, so this meant the following tax year was going to involve some messy filing as well.)

        Yeah, no. In June I got an e-mail from someone at Payroll saying they’d just noticed I hadn’t had any state tax withheld for several weeks or months, and they were going to reinstate my DC tax withholding pronto. I have never replied to an e-mail so fast (to say “What, no, I’m supposed to have Maryland tax withheld, here’s the e-mail thread where we talked about it in the spring”). Turns out they’d managed to switch off DC but not switch on MD. It’s fixed now – which means I got two W-2s this year and had to send my DC refund to MD to make up the difference between what they’d withheld and what I actually owe – but oof.

    2. Vicki*

      I know that question: Did you get paid by a company in another state?
      I hope never to have to answer “yes”. It gets weird.

      FYI: Turbo Tax is a wondrous application!!!

  12. INTP*

    For #2, wouldn’t it also be illegal for the OP to pay for her flights to the office as an employee? Employers are supposed to cover the cost of doing business, but I’m not sure how that applies when the cost of doing business is travel cost to a state where employers do not have to cover costs.

    1. The IT Manager*

      No. There’s no law that employers must cover the cost of doing business. But in this case it’s not even the “cost of doing business,” it is the cost being able to work from the new home in California. Employers don’t have to pay for the cost of you driving into work every day.

      1. Ask a Manager* Post author

        California does have a law that requires employers to pay for business expenses. It says “an employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.” So, yeah, more complications to the situation.

      2. INTP*

        There is a California-specific law to that effect, as Alison quoted. There are also rules about the employer reimbursing for mileage or travel when the employee is required to commute a distance that is significantly longer than their commute to the regular worksite. I’m not sure if the employer would be able to convince a judge that the headquarters that the employee visits four times per year is the “regular worksite” when the employee works from home the other 48 weeks of the year.

      3. Green*

        This is probably a good reason not to give definitive legal advice on the internet if you’re not a lawyer. (And you’ll still almost never see a lawyer giving this advice without caveats or words conveying that it’s conditional or uncertain. Because the real legal answer to 90% of legal questions is: Maybe; it’s complicated.)

  13. Jerry Vandesic*

    One way to handle each of these situations is for the employer to contract with a third-party contracting firm, and that firm would hire the existing employee. The employer’s relationship with the current employee would be as a contractor through the third party. It would cost a bit more (10-20%), but one of these agencies might have the experience employing people in California.

  14. SystemsLady*

    One asterisk on this is if you are moving for the purpose of accompanying a spouse in the military and 1) your spouse has your home/working state as their state of record 2) you do nothing to establish base state residency or invalidate home state residency while living in the base state (voter registration is the main thing to worry about, but sometimes driver’s licenses work like this too).

    Since 2009 under the MSRRA, as long as your spouse’s state of record matches your home state, you remain legally a resident of that state and NOT a resident of the base state until you take action to invalidate that somehow. There should theoretically be no , or at least a lot less, difficulties to your employer shifting you to remote work in this case, though IANAL. I would discuss it with them and make sure they’ve studied up on the law, of course. There may be some labor law-related exceptions I’m not aware of.

    It’s relatively easy to re-establish the old status quo of becoming a base state resident, so the opposite complication arising (new base state employer held to home state’s laws) is easy to prevent.

    I was also legally residing in the home state when I “moved” (kept the home state’s apartment as our legal address, due to going hone during deployments I lived there over half the year, etc.) so I have to admit my employer and I didn’t have to worry about too many of the intricacies of that new law. Glad I did, because my husband forgot to change his state of record to my home state for a while after our wedding…

    1. doreen*

      For most of these issues , residency is irrelevant. The MSRRA might affect the taxes the military member pays in the base state, but that’s not really what employers are worried about. Employers don’t pay your income taxes- at most they withhold them. An employer might not want to be bothered with that , but it’s not the big issue. The real issues are the other laws. Overtime regulations, break requirements , worker’s comp policies, unemployment and disability payments, laws regarding the accrual of leave all depend on the place where the work is done, not residency. Let’s just use California as an example- if you physically live in California and work from home for a Nevada company, that Nevada company will have to follow California labor laws regarding your employment just as if they had opened a new office on the California side of the border.

  15. Melissa*

    #1: I work in state tax administration. I am not speaking on behalf of my employer or providing official advice. Disclaimers done, if you moved to my state and continued to work for your employer (who is hypothetically speaking not already registered here), you would be establishing nexus in this state for your employer. This is true regardless of whether you are a contractor or employee. You could potentially be asking them to open up to all new tax liability, to say nothing of other liability, with my state (employee insurance etc.).j

    I know it would be nice to work remotely since you’re planning a move, but if they’re not already prepared for this it could be an awfully big ask.

  16. Vicki*

    “California’s are not known to be the most simple or the most employer-friendly.”

    But we are somewhat more employEE friendly. :-)

  17. HR*

    I would be very careful about “changing” to Independent Contractor with a current company. As Allison pointed out, the law is very interested in making sure that payroll taxes, unemployment insurance, workers’compensation insurance, etc. are all paid. The government has really cracked down in recent years on misclassified individuals. An employee who has a W2 from an employer one year and a 1099 from the same employer the next is a HUGE red flag. Someone who only has one 1099 from one company is another BIG red flag (company and “contractor” are assumed to be dependent upon one another as the “contractor isn’t offering his services to other companies).

    There has been a 20 Factor Test in existence for a loooooong time to help companies determine status. Link http://art.mt.gov/artists/IRS_20pt_Checklist_%20Independent_Contractor.pdf.
    The DOL attempted in May 2014 to make it a little easier to understand by creating the Economic Realities Test http://www.dol.gov/whd/regs/compliance/whdfs13.htm
    It boils down to if you ONLY “contract” with one company, you provide an integral part of running the business, the company provides your training, the company provides your equipment (phone, laptop)…your an EMPLOYEE. If/when discovered, it can cost the company major $dollars in back wages, overtime, benefits for 2-3 years. The government will likely look at other employees and issue financial remedies for them and if it is determined that it was willful, there can be additional penalties.

  18. De Minimis*

    I work for a small non-profit and we have remote employees in eight states. We outsource a lot of the payroll processing and reporting and are exempt from a lot of things due to our size and status, but it’s still a headache. It would be even worse if we were a for-profit enterprise.

    Some states are way more of a hassle to deal with than others–not the bigger states, but the ones that you would think would be less regulated.

  19. Erin*

    No advice, but just want to say thank you for asking/answering these questions. Really interesting, and I think applicable to a lot of people.

  20. Van Wilder*

    State tax accountant here. Another issue with some states is that having payroll in the state creates an income tax filing obligation for the employer. This is not generally the case with CA, although certain industries have special apportionment rules, but it is the rule in roughly half the states.

  21. chica*

    Another thought about becoming a 1099 contractor. at that point you are essentially opening your own business. You should talk to someone about (possibly) setting up an LLC, you will need to look at filing a schedule c, you should be tracking business expenses, getting liability insurance, looking at if you are entitled to a home office deduction & figuring out what those expenses are, etc. There’s a lot more to it (if you want to protect your personal finances and get the maximum amount of deductions you are entitled to – which you will want to do once you find out what paying ALL the SS & payroll taxes & all the cali taxes actually costs – because if you don’t get all the deductions you are entitled to, your taxes will be based on the total amount reported on your 1099 as if all that money is straight profit, which it IS NOT once you pay for all the other stuff you need to do your job/business). Also, Miss Herring above had some very good advice. You need to read all that carefully and make sure you understand it. It’s going to be a huge PIA. get them to change your address immediately, and also notify the payroll company of the actual date you moved and ask them to change their records and fix it. (hopefully it’s a payroll company and not just the bookkeeper in the office doing payroll???)

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