The best employees aren’t concentrated in any one location — they’re spread out around the world. However, many business owners hesitate to hire remote employees due to concerns over paperwork, taxes, and other compliance considerations.
Fortunately, legally hiring remote employees doesn’t have to be complicated. In this article, we’ll take a look at employment compliance rules to make sure you understand your obligations. After reading, you’ll be ready to hire the best candidates without worrying about their location.
Startups and other small companies often hire employees who live in the same state where the business is headquartered. For example, let’s say your business is incorporated in California, and all of your employees live in that state.
In that case, you only need to worry about taxes and regulations in California. On the other hand, hiring remote employees from other states introduces new compliance issues for business owners to be aware of.
Step 1: Foreign qualification
Before you can hire a remote employee in another state, you usually need to register your business to operate in that state. This process is called foreign qualification, and it typically goes through the office of the Secretary of State.
As a business owner, you need to file for foreign qualification in each state where your business expands. State laws vary on what constitutes expansion into their jurisdiction.
You don’t always need foreign qualification for things like business meetings, joint ventures, and partnerships across state lines. However, most states mandate foreign qualification for ongoing operations. As a basic rule of thumb, foreign qualification is generally required in these situations:
Since every state has its own rules, these are more like general guidelines than clear rules. Click here to learn more about the foreign qualification requirements in each state.
Given today’s remote work landscape, remote hiring is the most common reason for foreign qualification. You should get started on foreign qualification as soon as possible if you’re planning to hire a remote employee in a new state. Firstbase Agent takes care of the entire foreign qualification process for you, so you can expand with ease.
One tricky element of foreign qualification is the registered agent requirement. Your registered agent is responsible for receiving legal notices, tax documents, and other mail on behalf of the business. You won’t be able to complete foreign qualification for your company without appointing a registered agent in the target state.
Firstbase Agent provides instant access to registered agents in all 50 states. Our all-in-one platform can automatically file your foreign qualification and other critical compliance documents. We’ll let you know when new deadlines are approaching so that you don’t risk late fees or other penalties.
Step 2: Payroll tax registration
Employees generally pay taxes in the state where they work, even if the business mostly operates in another location. Income tax and other taxes vary from one state to another. This means that you’ll need to adjust your tax withholding practices as you hire more employees who work in other states.
Furthermore, you may need to register with the state unemployment office depending on whether you meet the criteria for a particular state. Employers with full-time employees typically need to pay unemployment insurance in the states where those employees live.
Taxes and other regulations vary dramatically between states, which makes things tricky for expanding businesses. Failing to meet any single requirement could lead to significant penalties for non-compliance.
Firstbase Agent’s new Payroll Tax Registration feature can automatically register your company and set up the right payroll accounts in new states. We’ll make sure you stay in compliance with state regulations so that you can focus on recruiting talent and growing your business.
Congrats! You’ve compliantly hired a remote employee, but did you really think the government would make it that easy for you?The initial setup outlined above is crucial for remote hiring. However, it’s not enough on its own. You need to keep an eye out for ongoing compliance requirements in each state where you have remote employees.
Annual reports
For example, most states require registered businesses to file annual reports with up-to-date information about the company. Some states ask for them less frequently, but almost every state requires some form of reporting.
On top of that, each state has its own annual report requirements and due dates. Some states have one annual report due date for every business, while other states stagger deadlines based on the date each company was formed. That’s a lot for anyone to keep track of on their own — let alone a small business founder.
Franchise taxes
Additionally, Washington, D.C. and a total of 13 states charge franchise taxes to businesses that operate within their borders. Like annual reports, franchise taxes work differently and come with different deadlines in each of those 14 jurisdictions.
You could face late fees, loss of good standing, and other serious consequences if you fail to file annual reports or pay the required franchise taxes. With Firstbase Agent, you’ll receive a notification whenever due dates are approaching. We can even pre-fill state compliance forms to help minimize time spent on paperwork.
Hiring remote employees might sound straightforward, but these key requirements are easy to overlook. When it comes to compliance, even a seemingly harmless mistake could set your business back in terms of time, money, and credibility.
Firstbase Agent enables end-to-end compliant remote hiring and helps companies manage ongoing compliance obligations for their entire workforce in every state of operation. Sign up for Agent today to foreign qualify, connect with registered agents, set up payroll accounts, and stay on top of your filing requirements in every state all from one intuitive online dashboard.
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