Remote Employees Change Legal Obligations For Employers: Why Location Matters

This is Part 1 of a 3-part series – In this series, we break down the key risks, compliance challenges, and practical considerations every employer should understand.

Part 1 – Overview

In this three-part series we will examine critical legal risks and solutions to the increasing demand for remote work arrangements. Remote work is often framed as logistical or restructuring, or, following the COVID-19 pandemic, a cultural shift. However, legally, it is a geographic expansion of your company footprint, whether you intended it or not. The moment an employee performs work from her home in another state, your company is subject to an entirely new set of laws. For employers, the key misconception is that a “fully remote” workforce simplifies compliance. In practice, the opposite is often true.

A critical concept in remote work compliance is “nexus.” In simple terms, a nexus refers to the connection between your business and a state that subjects you to that state’s laws and regulatory authority. In many states, hiring or allowing an employee to work in that state creates a sufficient nexus between the company and the state to require employment law compliance (i.e., wage and hour, leave, etc.), state and local tax obligations, and unemployment insurance and workers’ compensation coverage. Importantly, a physical, brick and mortar presence is not needed to create a nexus.

Once a nexus is established, a company may also be required to register to do business in that state. This can involve filing for a foreign qualification with a state’s Secretary of State, appointing a registered agent, and maintaining ongoing reporting obligations. Failure to register where required can lead to penalties, back fees, and limitations on the company’s ability to enforce contracts in that state. Not every remote employee automatically triggers a registration requirement, but many do – particularly where the employee performs core business functions rather than purely administrative tasks.

Remote work also introduces direct conflicts between state and local laws. For example, California requires meal and rest breaks, daily overtime, and detailed wage statements. Pennsylvania does not impose comparable requirements. Similarly, cities like San Francisco, New York City, Chicago, Pittsburgh, and others impose additional paid leave, scheduling, and notice obligations. There are even some county and municipal laws that go beyond the state requirements in which they are located. When laws conflict, employers generally must apply the law of the state where the employee is working. Determining which rules apply and how to harmonize company policies across jurisdictions can be extremely complex.

The assumption that remote work reduces legal complexity is understandable, but often incorrect. While a centralized workforce typically operates under one primary legal framework, a dispersed workforce will require compliance with multiple wage and hour systems, overlapping tax regimes, differing leave and accommodation requirements, and varied employee notice and posting obligations. Additionally, remote arrangements can complicate worker classification, timekeeping, FMLA thresholds, and date privacy and network security requirements.

Employers should consider conducting a state-by-state compliance review before approving remote work locations, aligning company policies to account for state specific requirements, and monitoring where employees are actually working and not just where they are assigned. Some companies use third parties as a way to bridge compliance. While remote work expands opportunities, it also expands legal exposure. The hidden risk is not the remote arrangement itself, but the assumption that location does not matter – because it very much does.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.