What states are the best/worse to have remote employees in?


One of the issues many small companies in the US run into is wanting to hire an employee (who let's say will work from his home) that lives in a different state.

I've found that some of the states are pretty good about this while others, due to taxes and regulations are really bad for this. Two that come to mind are Washington and Texas who require a business to register and pay taxes if they have just one employee there.

I often get resume's from people that are in a state that we don't have a presence in and I'm not sure it's worth getting the process started in some states.

Which states are better/worse for this?

Hiring Tax

asked Dec 23 '09 at 09:31
1,866 points
  • I wonder why Washington and Texas. Neither have a state income tax. What taxes does the business need to pay? – Coder Dennis 14 years ago
  • From what I remember they have business taxes and significant paperwork filing requirement (CA does also) that make having employees there more work that you would like for 1 employee. – Dane 14 years ago

1 Answer


If you are talking about full fledged employees, payroll related taxes and such is just the tip of the ice berg assuming you offer some other kind of benefits such as health insurance, etc. to employees. And, for the record, I am not aware of any states that don't have some level of requirements to meet. As a minimum, assuming they have income taxes, you always have the issues of having tax numbers and withholding, etc. for the employees, etc. in each state.

With that said, between a decent payroll services provider and your lawyer, this is extremely commonly navigated territory for attorneys to know exactly what is required in each case. Unfortunately, while clearly an unnecessary friction and costs being introduced by your "friendly" state government, it is an inevitable evil that results from getting some level of business success.

Not sure if this is an option, but if you avoid going the employee route, and simply have them working as an independent contractor, all these issues are avoided. All you need to do is file a federal 1099 form for what you pay them each year and all the issues are pushed to them at the personal taxes level. Generally, you probably want to pay them more; to cover their own FICA and Medicare withholding for example (that you would have had to pay Uncle Sam anyway), but it is definitely an option if you are small shop and there is no reason you can't ink a contract that makes the individual feel more comfortable about the arrangement. Again, especially if you pay them a premium some kind.

answered Dec 24 '09 at 11:42
Tall Jeff
1,406 points
  • Actually this is a good idea. I thought that in some states like CA though they frowned on having someone that is basically full time treated as a consultant. Maybe if they are at a remote location it's not a big issue. – Dane 14 years ago
  • @Dane - I'll start by saying I am not a lawyer, but my understanding with the issue relative to full time consultants more relates to consultants sitting side by side with employees who have benefits, etc. The arguments went that these armies of consultants looked like employees and therefore were entitled to the same benefits as "defacto" employees. In CA specifically, there may have been other implications I'm not aware of that came into play (such as tax withholding or something like that), but I would think a remote person in another state with a specific skill is not a problem. – Tall Jeff 14 years ago

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