Which State’s Law Applies to Employees Working Temporarily Outside of the State of their Residence?
September 11, 2024
By: Colin A. Walker
Remote work has become commonplace, especially since the COVID pandemic. If the employee is working in another state permanently, the employment will be subject to the laws of the employee’s residence. But, which state’s laws apply to a worker who is working temporarily in another state? This situation commonly arises when the employee works in another state on a temporary assignment, or before and/or after a vacation.
This is a difficult question to answer because a myriad of employment laws apply in the workplace, and such laws vary from state-to-state. However, the law provides some guidance for employers in this situation.
For unemployment insurance benefits, the U.S. Department of Labor has issued “Localization of Work Provisions” to create a uniform test to determine to which state wages should be reported and unemployment insurance tax paid. See advisory here. They provide that if the work is “incidental” to the employee’s work in the home state, then the unemployment laws of the state in which the employee is temporarily working do not apply to the employee. Service is considered incidental if it is “temporary or transitory in nature, or consists of isolated transactions.” The Provisions provide several helpful examples. One example indicates that a foreman on temporary assignment in another state for seven months, after which he returned to the home state to work for the same employer, was subject to the unemployment laws of the home state. However, if the foreman had been hired in the home state specifically to work on the project in the other state, and had been laid off after the project was completed, he would be subject to the laws of the state where the project was located.
Some laws specifically address temporary work in another state. For example, under the Colorado Workers’ Compensation Act, the definition of “employee” excludes any person employed by an out-of-state employer performing “incidental” work in Colorado where the employee is covered at the time of injury under the workers’ compensation laws of another state. “Incidental work” means work that is “randomly or fortuitously” in Colorado. Thus, if an employee from another state is working temporarily in Colorado, and met the definition of “incidental,” the employee would not be subject to Colorado workers’ comp law. Conversely, the statute provides that a Colorado employee is entitled to workers comp benefits if the employee is injured on the job out of state within 6 months after leaving the state.
Similar questions arise regarding employees working outside of the United States, and the rules are similar. Generally, the employment law of the employee’s home state will apply if the employee is employed in another country temporarily.
Regarding income tax issues for workers corking out of the country, many CPA firms specialize in this issue.
This is a complicated issue. To fully understand it, an employer would have to research the laws in the specific states (or countries) where its employees are working, and, as usual, employers should consult legal counsel. But, if the work is truly temporary and incidental, in most cases, the laws of the employee’s home state are likely to govern. If the work is long-term or permanent, the laws of the state or country where the work is being performed may well apply.