Out-of-state employees: An HR nightmare

The world is becoming increasingly more flexible about where employees work. And during the Great Resignation, this is a boon for employers because they can hire the best talent regardless of where they’re located in the U.S. But while this is a great recruitment and retention tool, it’s also a bit of a nightmare for HR due to all the state-specific requirements you need to comply with when hiring out of state.

If you haven’t hired out of state or had an employee move out of state during the pandemic, you’re in the minority. In a poll during a recent HR Morning webinar, “Employees working in new states – Are you up to the task?” only 10% of attendees hadn’t hired someone out of state or had an employee move out of state in the last six months. And 43% said they did both.

Employment laws jurisdiction

Hiring out of state brings up a lot of issues. One big issue: If a company is headquartered in State A and it hires someone from State B to work remotely which state’s employment laws apply?

“The answer: The place where the employee works,” Adrienne Jack, VP of Legal Product at SixFifty, said during the webinar. “So, if a company is headquartered in New York City, has customers in New York City and only has office space in New York City, but hires an employee to work remotely in California, even if that employee is only doing administrative work and not dealing directly with customers, California law will still govern that employment relationship.”

And that means that the employer needs to:

• register to do business in California
• comply with California employment laws, and
• provide the specific requirements that are mandated in California.

So, the governing law is where the employee physically works. And you can work around it in your employment contracts.

Out-of-state limitations

Before an organization hires an out-of-state employee or allows a current employee to move out of state to work remotely, it needs to consider the limitations of hiring in that new state.

“Federal law and the laws of almost every state prohibit discrimination based on protected characteristics in employment situations,” explains Jack. “This means in hiring, in promotions, in pay, in performance reviews, in training, in benefits, they cannot discriminate against employees based on protected characteristics.”

And each state has different laws regarding what are considered protected characteristics. Employers need to pay special attention to them as they hire in new states because they differ from state to state. Recently, about eight states have revisited this list of protected characteristics and expanded it.

Even though the equal opportunity laws have been in place for a long time, they’re not set in stone. They can change. Companies need to pay attention to them and make sure that if they’re hiring in a new state, they’re aware of that state’s laws and are abiding by them.

There are also limitations on asking about a candidate’s criminal history. New York City, for example, has a Fair Chance Act that prohibits employers with four or more employees from inquiring about a job applicant’s criminal history before making a job offer. And then once that job offer is made, it prohibits the employers from revoking a job offer based on something in a candidate’s criminal history, without going through the fair chance process. 

“Employers must look at a set list of considerations before they can revoke a job offer from a candidate,” explained Jack. “They can’t just go in and conduct a background check and use that in their employment decisions without being aware of what the limitations are in that specific state on inquiring about criminal history.”

Similarly, there are limits on obtaining credit reports or background checks. Each state has different laws about how that process should occur, and if there are any limitations and disclosure requirements for employers to disclose certain information or statutes to employees.

FCRA

The Federal Fair Credit Reporting Act (FCRA) stipulates how and when employers can obtain a consumer report about a potential applicant or employee. And consumer reports include a broad range of categories, including driving records, criminal records, credit reports, information from third parties and drug testing.

Under the FCRA, employers must disclose to applicants they’re obtaining a consumer report, and they must get the applicant’s permission.

“That means they have to obtain the applicant’s consent before requesting a consumer report,” said Jack. “Once that report is obtained, if the company sees something in it that will affect their hiring decision and might have an adverse impact on the applicant, they have to disclose that to the employee before taking that adverse step against the applicant. And then there are certain other requirements on allowing the employee to protest or to appeal anything that’s in that report.”

In addition to the FCRA law, there are state-specific laws about how and when companies can obtain consumer reports or background checks on applicants.

“The Ninth Circuit Court of Appeals recently looked at a case where a company had obtained a background report on a candidate. The disclosure document the company provided contained the required FCRA language, as well as specific California language about the consumer report the company would be obtaining,” explained Jack. “In this case, the company tried to meet the federal requirement and the state requirement in one disclosure and consent form. The court struck it down and said it didn’t meet the standalone requirement mandated by the FCRA. It wasn’t clear and conspicuous enough to the applicant about what was happening at the company level and how and when that report would be obtained.”

Organizations that use consumer reports as part of their hiring process, need to make sure that their consent form meets the requirements of the laws, especially if they’re going into a new state. They need to make sure that they’re complying with that state’s specific laws requiring or impacting consumer reports.

Wage transparency laws

Another big issue that’s state-specific is wage transparency laws. There’s an increasing trend for states to require wage disclosure to applicants and employees who get promotions.

Some states are taking different approaches as to how this disclosure must happen. For example, there are states that require companies to provide disclosures in all job postings, stating the wage range. And it must be a “good faith” wage range. It can’t be open-ended, like “up to $80,000” or “at least $40,000.” The range must start and end with a number.

Other states require that salary be disclosed after a candidate has interviewed for a position or upon request.

Lastly, other states say you must provide a wage range to applicants or employees only upon request.

“So, it could be an affirmative disclosure, like Colorado and Washington, where companies have to have it,” Jack gave as an example. “If you’re posting for a job that can be performed fully remotely, which could include a Colorado employee, you need to include a wage range in that job posting or else limit the job to not include Colorado employees.”

This is something companies need to think about as they’re formulating their job postings and considering hiring employees in new states. And these wage disclosures also apply to current employees. So, if a current employee is applying for a promotion or a different job within the company, it would still need to provide that wage range to the current employee.

Stay tuned for part two of this three-part series when we’ll be talking about registration and tax requirements.