Distributed hiring made “where does this person sit?” an accounting question. Most employers discover the answer after the first payroll run, or after the first notice.
Nexus, briefly
Employing someone in a state generally creates obligations in that state, regardless of where the company is based. Typically that means registering with the state tax authority for income tax withholding, registering for unemployment insurance and paying into that state’s fund, and often local taxes on top — several cities levy their own.
Thresholds vary and a handful of states have reciprocity agreements. The one thing that is consistent: the trigger is where the employee performs the work, not where your headquarters is.
Where it goes wrong in practice
Withholding in the wrong state. Withheld for your state instead of theirs, all year. Now the employee has filed incorrectly, and you owe the other state.
The unnoticed relocation. An employee moves and mentions it in passing. Nobody updates payroll. Nine months later there is an unregistered obligation with penalties attached.
Employment law travelling with the employee. Overtime rules, sick leave accrual, final-paycheque timing, notice periods — these generally follow the work location. California and New York rules apply to your employee there even if your handbook was written for Texas.
Contractor classification. Using a contractor to sidestep registration is the expensive version of this mistake. States audit classification, several apply stricter tests than the federal one, and reclassification comes with back taxes, penalties and benefit liability.
A workable process
Ask for work location, not mailing address, and ask again annually. Register before the first payroll, not after. Make relocation a formal notification with a payroll step attached rather than a conversation. Keep a simple matrix of which states you are registered in and who sits where — most of the messes we see start with nobody being able to answer that from memory.
For one or two employees in a state, an employer-of-record arrangement often costs less than doing the registrations yourself. Past a handful, registering directly usually wins.
Why a staffing partner changes this
Contract placements sit on our payroll, in states where we are already registered. For a first hire in a new state that is frequently the difference between hiring next week and hiring next quarter.
