Pitfalls for Multi-State Employers to Avoid

“Business is booming!”

It’s a dream come true for small businesses. With growth, there can be growing pains. Hiring new employees in other states, opening new locations, expanding distribution channels – these are just the beginning. While ramping up to meet the demand, don’t overlook potential pitfalls as a multi-state employer.

Beware of background checks

Federal and state laws regarding background checks are complex with costly penalties for noncompliance. According to the U.S. Equal Employment Opportunity Commission, background check information obtained must be limited to what’s essential for determining if a person is qualified for the job. This includes any checks conducted by a consumer-reporting agency or social media background checks. Employers need to understand anti-discrimination and privacy laws before using social media, which gives access to information such as race, religion and age. With pending bills, state laws are constantly changing. As companies expand into new states, they should regularly review and update their background check procedures.

Health insurance challenges

Federal regulations apply to all health insurance carriers in all states. If your company is compliant with federal law in one state, you’ll be fine in other states. State laws, however, vary dramatically. Insurance carriers are regulated at the state level. For instance, California employees are legally required to participate in California Short-Term Disability Insurance (SDI). To avoid penalties, put together a comprehensive list of required filings and local regulations by state.

Navigating taxes

With employees working in multiple states, companies should check the state income tax withholding laws and whether the cities and counties have their own income tax withholding requirements. If employees work in more than one state, employers need to determine where the wages should be reported. Double withholding can be avoided depending on withholding policies of the resident/workplace state and reciprocity agreements with other states. When operating across state lines, employers should proactively understand the tax implications.

This is just the beginning. If your business is possibly expanding into another state, now is the time to understand the varying requirements. MidwestHR is a top PEO (professional employer organization) in Illinois and specializes in helping multi-state employers navigate this maze. Our experts will make sure you’re compliant and you can stay focused on growing your business. Give us a call to discuss your expansion plans.