Hiring an Out-of-State Employee? What to Review Before Your First Payroll

How to Set Up Payroll for a Remote Employee in Another State

You found the right person for the job, and they can do it from home. Their home happens to be in a state where your business has never run payroll. Before their first paycheck, confirm where they’ll work, which employer accounts you may need, and which taxes and deductions apply to their wages.

Start as soon as you know the employee’s work location. That gives you time to apply for any required accounts, collect the right forms, and check that your payroll system is set up correctly.

1. Confirm Where the Employee Will Actually Work

Ask for the employee’s physical work address and confirm whether they’ll work there full time, regularly visit your office, or split their time between locations. Record the city as well as the state, since local payroll taxes can apply.

If the employee lives across the state line and commutes to your office, their home and work addresses are in different states. Tell your payroll provider where they live and where they do their work. Ask which state’s income tax to withhold and whether a reciprocity agreement or employee certificate affects the setup.

If the employee works entirely from home in another state, their home is also their work location. Tell your payroll provider that the business has never run payroll in that state. Ask whether you need withholding or unemployment accounts there, what information the provider needs from you, and who will handle each registration.

If an existing employee plans to move or starts working regularly from a second location, review their payroll setup before the change takes effect.

2. Check State and Local Income Tax Withholding

Find out whether the state or locality requires you to withhold income tax and whether you need an employer withholding account. When the employee lives in one state and works in another, a reciprocal agreement can affect which state’s income tax you withhold. The employee may need to submit a certificate for the agreement to apply.

Some states have special rules for remote work. Confirm how the states involved treat the arrangement, collect the required forms, and check that your payroll system reflects the employee’s work address and withholding elections.

3. Review State Unemployment Insurance Separately

State unemployment insurance has its own rules for deciding where wages should be reported. For an employee who works entirely in one state, that state is generally the starting point. If the employee regularly works in multiple states, additional rules determine which state covers the employment.

Confirm where to report wages, whether you need a state unemployment account, and what employer rate to enter. A state without an individual income tax can still have unemployment insurance requirements. The U.S. Department of Labor’s guidance on work location and unemployment insurance explains how states evaluate work performed across state lines.

4. Confirm Coverage and Assign Each Setup Task

Ask your insurance broker to confirm that your workers’ compensation policy covers the employee in the state where they’ll work. Check where to file the new-hire report and whether state or local paid-leave programs affect payroll. If the hire also raises questions about business registration, state tax filings, or employment rules, bring those to the appropriate advisor early.

Ask your payroll provider who will open each account, enter the account numbers and rates, submit filings, and handle payments. If you need help with payroll setup or reporting, explore LeBeau’s payroll services. If the hire is part of a broader expansion, our business advisory services can help you budget for adding staff and operating in a new market.

What to Have Ready Before the First Pay Run

• The employee’s home and work addresses, start date, and expected schedule by location.
• Any required employer account numbers and the applicable unemployment insurance rate.
• The employee’s required withholding forms and any reciprocity certificate.
• Confirmation of workers’ compensation coverage and who will file the new-hire report.
• A payroll preview showing the employee’s work location and applicable taxes and deductions.

If an account or registration is still pending as payday approaches, contact the agency and your payroll provider promptly to confirm how to meet your payroll and filing deadlines.

Plan for Your Next Hire With LeBeau & Associates, CPAs

Hiring across state lines? Have the employee’s work location and first pay date handy, then call 208-898-0050 to discuss payroll support. If the hire is part of a broader expansion, explore a strategic tax planning consultation.