Remote work offers companies and employees more flexibility. We’re no longer limited by geography. Technology makes it easy to collaborate across the entire country. However, the complex issues that arise with out-of-state employees can be a barrier to nationwide hiring practices—and failure to comply can result in large fines and fees.
Paying federal and state unemployment taxes for each employee comes with the employer job description. It’s the only way a laid-off or furloughed employee has access to unemployment benefits if they become unemployed. But sometimes, you might not know which state to send SUTA tax to for an employee.
Unemployment tax rules for multi-state employees determines which state unemployment tax fund employers pay into for an employee.
Some employee work situations might cause confusion, such as an employee who:
- Lives in one state but works in another.
- Works temporarily in one state and regularly in another.
- Splits their work time between two or more states.
The general rule of thumb is the state you pay unemployment taxes to, for an employee, is the state that funds the employee’s unemployment benefits. You do not pay SUTA tax to more than one state for a multi-state employee.
Unemployment tax rules for multi-state employees depends upon the employee’s work scenario.
To make the state unemployment determination, follow the U.S. Department of Labor’s Localization of Work Provisions. These are four “tests” employers can use to determine which state an employee is covered by for unemployment purposes (aka, the state SUTA tax goes to).
- Localization of service
- Base of operations
- Direction and control
- Residence
Only move onto the next test if an employee’s situation doesn’t fit the test. For example, if an employee’s service is localized, don’t use the base of operations test.
Rarely will an employee not meet any of the four tests. If this is the case, you may be able to elect to cover the employee’s service in one state.
Most states allow employers to do this under an “election of coverage” provision or under the “Interstate Reciprocal Coverage Arrangement.”
Consult your state for more information on their election of coverage or reciprocal coverage rules.
Provide your employees with as much information as you can about how to file unemployment claims if you have to lay off or furlough your workforce.
ASE Connect
Virtual Course: Unemployment Compensation Overview
September 27, 2023
10:00 a.m. – 3:30 p.m.
Register
This class will not only provide the basic information about Michigan unemployment compensation administration, but will provide participants with updated information about responding to unemployment claims, including protests and appeals, the employer tax rate, and the definition of employee “misconduct” and other unemployment administration “lingo.” The class will also go over various challenging scenarios, such as how to fight an erroneous or fraudulent claim made by a worker refusing to work for non-qualified reasons.
Sources: Zywave & CCH