The short version
- Wage and hour law, mandated leave, final-pay deadlines and expense reimbursement generally follow the employee's work location, not the employer's headquarters.
- Federal law is a floor, not a ceiling. 29 U.S.C. § 218 expressly preserves any state or local rule that is more generous than the FLSA, so the stricter of the two always wins.
- A governing-law clause does not settle it. California, Washington and Colorado each void choice-of-law and out-of-state venue provisions aimed at workers based in their state.
- One remote hire is usually enough to create payroll withholding and unemployment-insurance registration in a new state, and it can put corporate income tax nexus in play too.
This is a United States problem in the shape described here. Other systems have a version of it — the UK and most of the EU tie employment protection to habitual place of work in a broadly similar way — but the fifty-state patchwork is what makes the American version expensive.
Why the employer's state does not carry across the line
Employment protections in the US come from three layers: federal statute, state statute, and in a growing number of cities, local ordinance. The federal layer is a floor. 29 U.S.C. § 218 says in terms that nothing in the Fair Labor Standards Act excuses noncompliance with a state or municipal rule setting a higher minimum wage or a shorter maximum workweek. Nothing anywhere says a state rule stops applying because the employer is somewhere else.
State wage and hour statutes are drafted around work performed within the state. That is the connecting factor — not incorporation, not where the payroll runs, not where the offer letter was signed.
One employee, two states, and what each one governs
Employer's state
- Where the company is registered
- Internal policy baseline
- Benefit plan design and carriers
Contested
- Governing-law clause
- Arbitration venue
- Which handbook version applies
Employee's state
- Minimum wage and overtime
- Paid sick and mandated leave
- Final-pay deadline
- Expense reimbursement
What actually changes when the employee moves
The list is longer than most employers expect, and almost none of it is discretionary.
| Obligation | Set by | The trap |
|---|---|---|
| Minimum wage | Work location, city included | A local ordinance can exceed the state figure. |
| Overtime | Work location | Some states count daily hours; the FLSA counts only the week. |
| Pay frequency | Work location | Monthly or semi-monthly payroll is unlawful in some states for some roles. |
| Paid sick leave | Work location | Accrual starts on day one in the state, not at the next plan year. |
| Final pay | Work location | Same-day to next payday, often with penalty wages attached. |
| Expense reimbursement | Work location | Home internet and phone become payable in reimbursement states. |
| Pay transparency | Where the job may be performed | A remote posting open to a disclosure state carries the range. |
Two rows produce most of the claims. California Labor Code § 2802 requires an employer to indemnify an employee for all necessary expenditures or losses incurred in direct consequence of the discharge of their duties, and expressly includes the fees of enforcing that right. Illinois has a comparable provision. In home working the necessary expenditure is the broadband line and the phone, and the failure mode is a company that reimburses nobody because its own state requires nothing.
Final pay is the other. There is no federal deadline, but state deadlines range from payment on the day of discharge to the next scheduled run, and several attach continuing penalty wages when they are missed. An employer applying its home-state timetable to a departing employee in a strict state is late before it starts.
The non-compete surprise
Restrictive covenants are the clearest case of the contract losing. A non-compete drafted under a permissive state's law, signed by an employee who then works from a restrictive state, is often judged by the second state — and three have legislated to say so rather than leaving it to conflicts argument.
- California Labor Code § 925 makes voidable any provision requiring an employee who primarily resides and works in California to litigate elsewhere or to be deprived of the substantive protection of California law. The exception is narrow: an employee individually represented by counsel in negotiating that specific term.
- RCW 49.62.050 voids a non-competition covenant signed by a Washington-based worker where it requires adjudication outside Washington or applies another state's substantive law.
- C.R.S. § 8-2-113 provides that Colorado law governs enforceability, and out-of-state adjudication cannot be required, for a worker who primarily resided or worked in Colorado at termination.
The contract picks one state; the employee sits in another
What the contract says
Where the employee primarily works
A state that enforces non-competes
California, Washington or Colorado
Silent on governing law
Local law governs, and allows it
Nothing to argue about. The covenant is judged on reasonableness where the employee works.
Local law governs, and voids it
No clause points the court elsewhere, so the employee's state applies its own ban directly.
Picks the employer's state
Choice of law respected
Both states permit restrictions, so the clause is doing real work and courts generally follow it.
Voided by statute
The governing-law provision is the thing the statute targets. Voiding it takes the non-compete with it.
The state map moves; our guide to non-compete enforceability covers where the federal position landed. The point here is narrower. A covenant that was enforceable when signed can stop being enforceable because the employee moved, and nobody will tell the employer it happened.
Employment contract template
Includes a work-location clause, so the state the job is performed in is a stated term rather than an assumption — which is what makes a later move a change requiring approval instead of a surprise.
What one remote hire does to the company
Employment tax nexus has no dollar threshold. A single employee performing work in a state is generally enough to require the employer to register with that state's revenue department for income tax withholding and with its workforce agency for unemployment insurance, and to review workers' compensation coverage, which is written state by state.
Corporate income tax is separate and messier. A seller of tangible goods whose only in-state activity is soliciting orders has historically been protected by Public Law 86-272. An employee working from a residence there, doing anything beyond solicitation, can take that protection away. It is a question for the company's tax advisers — and the trigger is an HR decision.
A policy that works: approved locations, not "work from anywhere"
"Work from anywhere" is a recruitment promise that quietly delegates a compliance decision to whoever is choosing a flat. The workable alternative is not a return to the office; it is a short list of states the company is already set up in, plus a route to add one.
Four ways to run a distributed team, cheapest first
- One page, reviewed twice a year
Approved-state list
Hire only into states where registration already exists. Cheapest to run, hardest to recruit against.
- One form, one week
Notify and approve
A change of work state needs written approval first. Adds a state deliberately, when a hire justifies it.
- Filings and returns per state
Register on demand
Open anywhere, registration triggered by each new location. Works; the ongoing filing burden is real.
- Penalties, interest, back pay
Unmanaged
People move, nobody records it, and the bill arrives years later.
The cost of the top rung is recruitment reach. The cost of the bottom rung is unbounded.
Make the work location a contract term
- Name the approved work state in the offer and the contract, not just the payslip address.
- Require written approval before any change of work state, and say approval may be refused.
- Apply the handbook with state supplements; a single national policy is usually below the floor somewhere.
- Set a reimbursement policy that meets the strictest state you employ in — cheaper than running several.
- Reconcile payroll work state against where people actually are, once a year.
The offer letter is where the location term should first appear, and the employee handbook acknowledgment is where state supplements get signed for. Draft any non-compete knowing it may be read under a state you did not choose.
If you are the employee
The protections belong to you and cannot be waived by agreeing to something weaker. If you work from a state with paid sick leave, daily overtime or expense reimbursement, those apply even where your employer has never heard of them and the contract points elsewhere.
- Tell your employer before you move, in writing. An undisclosed move puts your own tax filing in a mess and gives the employer a reason to treat the relocation as misconduct.
- Keep your own record of hours and unreimbursed costs. Wage claims are decided on records.
- If you are reclassified as a contractor because you moved, look hard at that. The employee or contractor test does not change because the work is now out of state.
The clause that fixes most of this
Nearly every failure here starts the same way: nobody wrote down where the work happens. A contract that names a work location and requires approval to change it does not make the state rules go away. It converts an invisible drift into an event — a form, a decision, a registration. That is the whole intervention, and it costs a paragraph.
Employers resist it because it looks inflexible. It does the opposite. Naming the state is what allows the answer to be yes: the company can find out in a week what yes costs, and decide. Companies without the clause do not say no. They say nothing, and find out later what they agreed to.
Sources
General information, not legal advice. This guide explains how these documents and rules generally work. Law varies by jurisdiction and changes, and none of it is applied to your circumstances here. For anything consequential, consult a licensed attorney where you are.
Frequently asked
Which state's employment law applies to a remote worker?
Generally the state where the work is physically performed. Minimum wage, overtime, mandated leave, pay frequency, final-pay deadlines and expense reimbursement are drafted around work done in the state, so they follow the employee rather than the employer. Federal law sets a floor beneath all of them, and where federal and state rules differ, the more generous one governs.
Does the governing-law clause in my contract decide it?
Not for mandatory protections. A choice-of-law clause can settle contract interpretation, but it cannot contract out of a state's protective wage and hour statutes for work performed there. California, Washington and Colorado go further and void such clauses outright where they are aimed at workers based in those states, at least in the non-compete context.
Can my employer stop me working from another state?
Usually yes. Absent a contract term or a statute giving you the right, where you perform the work is a term of employment the employer can set, and refusing a relocation request is lawful. What an employer cannot do is permit the move and then decline to follow the new state's rules. Get any approval in writing before you go.
Does hiring one remote employee create tax obligations in their state?
For payroll purposes, almost always. Employment tax nexus has no minimum threshold, so a single employee working in a state generally requires registration for income tax withholding and unemployment insurance, plus a workers' compensation review. Corporate income tax nexus is a separate analysis that depends on what the employee does and which state it is.
Is my non-compete still valid if I move to a state that bans them?
Often not, though it depends on the state and the timing. Several states apply their own law to workers primarily working there regardless of what the contract chose, which can leave the covenant unenforceable where you now sit. Non-solicitation and confidentiality obligations usually survive that analysis, so a move rarely frees you from everything.