Remote working has skyrocketed over the past year, primarily because of the life-changing coronavirus pandemic, which forced many businesses to send their employees home and continue operations. As expected, companies have faced challenges when coping with remote work, especially regarding employment laws and remaining compliant.
If you're a business that's rapidly expanding and you have employees located in different states — or even scattered around the world — you're probably asking which state laws apply to remote workers. Let's run through the laws, legal issues and considerations that could apply.
The Fair Labor Standards Act
The Fair Labor Standards Act governs the US created by the Department of Labor. Underneath this, you'll find all of the different state laws depending on the states your remote employees work in. In the US, you need to consider each state law of where your team works from.
As a general rule, federal employment laws don't apply to any employees you have overseas — unless the law specifically states it applies outside of the US. However, many US employment laws apply when hiring American citizens worldwide.
Title VII of the Civil Rights Act 1964
Americans With Disabilities Act
Age Discrimination in Employment Act
The Employer Retirement Income Security Act 1974
Civil Rights Act 1866
Fair Labor Standards Act
National Labor Relations Act
Family and Medical Leave Act
Occupational Safety and Health Act
All of these laws apply if you hire US citizens in countries across the globe. When it comes to international regulations for non-US citizens, you'll need to be aware of each location's laws to ensure compliance.
Regardless of the US state where remote workers are located, the FLSA needs you to complete Forms I-9. The forms are then compared to government records through E-Verify to approve that an employee is authorized to work in a US state.
Immigration laws and requirements differ between states, too. For instance, E-Verify is compulsory in Alabama and Mississippi, while it's limited in California. In terms of international remote employees, you need to ensure you're compliant with the destination country's immigration policy.
If you're expanding your business across international waters with foreign remote workers, you'll need to ensure employees obtain the appropriate visas and permits before they begin working.
Salary and Working Hour Laws
Businesses that have remote workers across multiple states and around the globe need to pay employees per the applicate state, federal and country-specific laws.
The intricacies involved here can make it challenging for HR figures who are accountable for adhering to these particular laws. Here's some guidance on what you'll need to consider:
Minimum wage: If your business operates in one state or country yet remote workers are located elsewhere, the minimum wage rates can differ. In most cases, it depends on the jurisdiction and if more than one law applies. If multiple laws regarding minimum wage cover an employee, they'll likely be on the higher end.
Payroll: State and international deadlines, tax changes, tax rates, federal laws — these are all factors you need to stay on top of when you have employees in different states or countries. By researching where your employees are located, you might find small yet critical details, such as payday frequency reminders, timing, accrued vacation and more.
Overtime: This is where you'll need to update your policy regardless of remote employee location. You need to ensure all hours worked are recorded and confirm the regulations on overtime. The last thing you want is overtime pay in multiple countries causing your frustration and landing you in legal issues.
An example of where a vital factor like overtime crosses the legal barrier is when it exceeds federal requirements. It varies state by state, too. Maryland businesses must pay overtime to employees who work more than 40 hours per week. In comparison, California companies must pay overtime to employees who work over eight hours in one day and the first eight hours on a seventh consecutive day in a workweek.
If this is how much it can vary by state, you need to ensure you're on top of the overtime and general payroll details for the country you're expanding to and where employees are located worldwide. What might apply in Greece could be vastly different in Argentina.
You won't get embroiled in costly hour and wage claims by doing your due diligence.
Tax implications are some of the biggest hurdles you'll need to overcome when considering employment laws for remote employees, as it differs from state to state and also from country to country.
In the US, for instance, businesses withhold and pay taxes in the state where the employee works, even if you don't have an entity in that state. So, if an employee is working remotely and moves to another state, you'd need to withhold and pay taxes in the new location. A lot of red tape is involved here, such as registering with relevant tax agencies and paying taxes according to a state's laws.
If a US citizen you hire relocates to work for you from another country, you'd usually need to pay the relevant tax according to the country where your employee resides, unless there's a tax treaty.
It gets trickier when honing in on specific countries, too, as the tax laws and regulations vary. For example, in the UK, factors such as Pay as You Earn come into play, along with specifics such as working from Scotland and having a different income tax rate compared to the rest of the UK.
Then there's France, where working remotely can affect tax residence, income tax and social security contributions. Depending on the countries where your remote employees are based, you'll need to ensure you're meeting the relevant tax laws and regulations to avoid issues down the line.
Workers' Compensation Policy
In the US, it's the law to register workers' compensation insurance in an employee's workplace. It covers you and the employees should an accident occur at work through specific job duties. It also covers aspects such as death benefits, but the policy differs on a state by state basis.
If this law or a variation of this law applies in a particular country where an employee is working for you, you'll need to provide workers' compensation insurance. This statute is essential to understand as it doesn't always limit your liability to injuries that occur. Always double-check the requirements to ensure you comply with another state or country's employment laws.
A general rule to follow is that the longer an employee works for your business from another country or state, the more likely it is that local law applies. In some cases, international employment laws are better for employees, such as probation periods favoring employees in countries like the UK, China and Mexico, where notice periods last for weeks.
Other employment laws you'll need to follow in states and other countries outside of the US is paid time off. Throughout Europe, the limit is set at approximately 20 days, whereas the number is tied to the years of service with companies in Asia.
There might also be instances where foreign jurisdiction laws apply, where you'd be required to contribute to an employee's insurance accounts, social benefits related to location legislation and comply with payroll tax legislation — depending on where they're located.
Remember, if you'll have employees worldwide on a long-term basis, your income is taxable in that location under permanent establishment rules. That's when you'll need support setting up an entity in your chosen location.
Things to Remember When Hiring Remote Employees in a Foreign Country
As extensive as it seems, labor laws in the US are more manageable than countries worldwide, as you only need to toggle between state laws. It's more complex when remote workers are in a foreign country, as the applicable employment laws are based on where employees perform their duties.
Here's what you need to consider when hiring remote employees in foreign countries:
Possible risks with foreign law
Becoming a registered entity in a foreign country
You need to spend a lot of time and money in ensuring employment law compliance. It's essential that you're in a comfortable position to pivot with matters relating to payroll, insurance, tax and more.
Consider working with professionals, such as Global Professional Employment Organizations (PEOs), that can help you expand into new markets while minimizing the risks — ensuring compliance every step of the way. That's precisely why we've developed GXOne.
Learn More About GXOne Today
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If you're ready to learn more about GXOne and why 54% of the global market is turning to this software, click the button below, so you don't miss out.