Remote and hybrid work arrangements are now a permanent feature of the employment landscape, but many employers have not updated their legal frameworks to match. The compliance risks are real, and enforcement activity is increasing.
The most pervasive risk involves multi-state taxation. When employees work from a state different from the employer's principal place of business, the employer typically becomes subject to that state's payroll tax, unemployment insurance, and potentially corporate income tax obligations. Many small and mid-size employers have employees working remotely in states where the company has never registered or filed, creating significant back-tax exposure.
Wage and hour compliance is another frequent problem area. Remote employees who are non-exempt under the FLSA are still entitled to overtime for all hours worked over 40 in a week. Without robust timekeeping systems, employers lose visibility into actual hours worked, creating potential liability for unpaid overtime. Several high-profile class actions have targeted employers in tech, financial services, and professional services over remote worker overtime claims.
State-specific employee protections add another layer of complexity. California, New York, Illinois, and Colorado, among others, have employee-protective statutes that apply to any employee working in those states — regardless of where the employer is headquartered. These include specific meal and rest break requirements, notice obligations, non-compete restrictions, and in some cases, pay transparency mandates.
Expense reimbursement policies need to be reviewed. Several states require employers to reimburse employees for all reasonable business expenses, including home office equipment, internet service, and phone costs. Blanket policies that require employees to absorb these costs may violate state law.
We recommend that employers conduct a remote work compliance audit covering: payroll tax registration in all states where remote employees reside, timekeeping system adequacy, expense reimbursement policies, and state-specific employment law compliance by jurisdiction.