Where the Work Is Performed and Why It Decides
Almost every question about a cross-border employee resolves to one fact. Not where the company is, not what the contract says, not where the offer letter was signed — where the person was sitting when they did the work.
The rule in short
Wage and hour entitlements, paid leave contributions, unemployment insurance assignment, workers' compensation coverage and income tax withholding are each decided by rules that converge on the place where work is performed. The employer's location, the state of incorporation, the governing law clause and the employee's residence all matter far less, and in several contexts not at all. Because the rules are separate they can diverge at the edges, but the strong default is that the desk decides.
Employers approaching cross-border employment for the first time usually start from the wrong end. They ask which state the company is in, which state the contract names, or which state the employee was hired from. Each of those is a reasonable question and none of them is the one that decides. The rules across five different subjects converge on a single fact, and it is the least legal-sounding fact available: where the person was when they did the work.
The five subjects that converge
Wage and hour entitlements. Minimum wage, overtime, breaks, reimbursement and pay timing generally follow the state where the work is performed, and a contractual choice of another state's law rarely displaces them, as set out in whose wage and hour law covers a remote worker.
Unemployment insurance. Assignment runs through localization tests beginning with whether the service is localized in one state, described in which state pays an unemployment claim.
Paid leave contributions. Where a state operates a program, coverage attaches to work performed in the state, using the same localization logic.
Workers' compensation. Several bases can apply, and the place where the injury occurred — which for most workers is where they work — is the most prominent.
Income tax withholding. Wages are generally sourced to the state where the services are performed, with a small number of states applying a convenience rule that reaches remote work performed elsewhere.
What does not decide
The employer's headquarters. A company based in a state with light employment regulation does not export that regime to employees elsewhere. This is the assumption that produces the largest exposures, because it is held confidently and rarely tested.
The state of incorporation. Relevant to corporate governance and to citizenship for diversity jurisdiction, and irrelevant to employment entitlements.
The governing law clause. It may govern interpretation of the contract and will generally not displace protective employment legislation in the state where work occurs.
Where the offer was signed. Of some relevance in workers' compensation and almost none elsewhere.
The employee's residence, considered alone. Usually the same as the place of performance for a remote worker, and not the operative test. A worker who lives in one state and commutes to another is governed largely by the state they commute to.
| Obligation | Follows the work location | Follows the employer |
|---|---|---|
| Income tax withholding | Yes | Only under a convenience rule |
| Unemployment contributions | Yes | No |
| Workers' compensation | Yes | No |
| Wage and hour standards | Yes | No |
| Required workplace notices | Yes | No |
Where the subjects diverge
Multi-state workers break the convergence. An employee genuinely splitting time can be subject to two states' wage rules, assigned wholly to one state for unemployment, covered by three for workers' compensation and withheld in two for tax.
Unemployment insists on one answer. Its localization sequence is designed to produce a single state, which is why it can diverge from the wage analysis.
Workers' compensation permits several. It tolerates concurrent jurisdiction and gives the worker a degree of choice, as described in workers' compensation when the injury happens away.
Tax has its own complication. Convenience-of-employer rules can source income to the employer's state for remote work, producing withholding in two states and a credit claim to sort it out.
The practical response is the most protective standard. Employers with mobile staff commonly apply the strictest applicable wage rule across the workforce rather than tracking entitlements day by day. It costs more and removes an entire category of dispute.
The single fact that answers most multi-state employment questions is where the employee physically works. Employers that cannot produce a current list of the states their people sit in cannot answer any of these questions, and that list — not a legal opinion — is the first thing worth building.
What to actually do
Know where the people are. An employer that cannot produce a list of the states its work is performed in cannot comply with any of the five subjects and will discover each of them through a claim.
Make work location a term of remote work. Requiring employees to work from an agreed address, and to give notice before changing it, is reasonable, common and the single most effective control available.
Re-run the analysis when someone moves. A relocation changes the wage rules, may change the unemployment assignment, may require a new registration and will change withholding. None of it happens automatically.
Budget for the states actually operated in. Each additional state is a compliance surface, and the decision to hire there should be made knowing that rather than discovering it, as discussed in when an employer must register in a second state.
For employees, the same fact answers the corresponding questions. Entitlements attach to the place where the work is done. Looking up that state's minimum wage, overtime rule, break requirement, reimbursement rule and leave program takes fifteen minutes and answers nearly everything, and it is the same reasoning that governs the separation-stage rules in terminating an employee in a state you do not operate in.
It is worth pausing on why the law settled on this fact rather than on any of the more obvious alternatives, because understanding the reason makes the rule easier to apply at the edges. Employment regulation is protective legislation: states enact minimum wages, break requirements and safety rules because they have decided what conditions should prevail for people working within their borders. A rule keyed to the employer's location would let any company choose its regulatory environment by incorporating somewhere permissive, which would empty the protection of content. A rule keyed to the employee's residence would produce different entitlements for two people working side by side. Only the place of performance gives every worker in a state the same floor, which is what the legislation was for.
That reasoning also explains the exceptions. Workers' compensation tolerates concurrent jurisdiction because its purpose is to ensure an injured worker is covered somewhere rather than to regulate conditions, so more coverage is better than a single tidy answer. Unemployment insurance insists on one state because it is building an earnings record that has to be complete. Tax follows the source of income because that is what tax does. Each departure from the general rule serves the purpose of that particular scheme, and none of them displaces the default.
For anyone trying to hold this in mind without a chart, the shortest version is this: ask where the person was sitting, and that answers the question unless a specific scheme has a reason to answer differently. Starting there and looking for exceptions is far more reliable than starting from the contract and hoping it governs, which is the approach that produces the surprises described throughout this subject. The contract is the last place to look for the answer, not the first, and treating it that way saves a great deal of expensive re-education. Employers who internalize this build systems that answer the question automatically; those who do not spend the same money later, on lawyers, answering it one claim at a time, usually while also explaining to an agency why nobody recorded where the work was happening.
Points to carry away
- Wage and hour law follows the place of performance in almost every state.
- Unemployment insurance assigns a worker to one state using localization tests.
- Workers' compensation may attach to several states, with the place of injury prominent.
- Income tax is generally sourced to where the work is done.
- The employer's own location is largely irrelevant to all of them.
Questions readers ask
Does it matter where the employment contract was signed?
Much less than people expect, and in several contexts not at all. The place of contracting has some relevance in workers' compensation, where a number of states assert jurisdiction over employees hired within the state, and it can matter in choice-of-law analysis for contractual questions. For wage and hour entitlements, paid leave, unemployment assignment and tax withholding it is generally irrelevant. An offer letter signed in one state for work performed in another does not carry the first state's employment law along with it.
What about an employee who genuinely works in several states?
Then the answers can differ between subjects, which is the awkward case. Wage entitlements may apply state by state according to where each day's work occurred; unemployment insurance assigns the whole worker to one state through the localization tests; workers' compensation may give several states jurisdiction at once; and tax withholding may be required in more than one. There is no single answer that satisfies all of them, which is why employers with genuinely mobile staff track location by day and apply the most protective wage standard across the board.
How should an employer actually track this?
Proportionately. For employees with a fixed remote location, recording the work address and requiring notice of any change is sufficient and should be a condition of remote working. For genuinely mobile staff, a simple day-level record of the state worked in — captured through expenses, scheduling or a short entry in a timekeeping system — answers nearly every question that later arises. The failure mode is not imperfect tracking; it is no tracking at all, which leaves the employer unable to establish anything when a claim is made.
Sources
- 29 U.S.C. § 201 et seq. — Fair Labor Standards Actlaw.cornell.edu
- 26 U.S.C. § 3306 — Federal Unemployment Tax Act definitionslaw.cornell.edu
- 26 U.S.C. § 3402 — Income tax collected at sourcelaw.cornell.edu
- U.S. Department of Labor — Wage and Hour Divisiondol.gov
- U.S. Department of Labor — State Workers' Compensation Officialsdol.gov
- Federation of Tax Administrators — State Tax Agenciestaxadmin.org
Right Way Review is a publication, not a law firm. This article states general rules and cites its sources; it is not advice about any particular case, and the law differs by state and changes over time.
More in Working in Two States
Daily Overtime Against Weekly Overtime
Federal law requires premium pay for hours worked beyond forty in a workweek and says nothing about how those hours are distributed. A minority of states add a daily threshold, requiring premium pay beyond eight hours in a day and in some cases double time beyond twelve, and a few require premium pay for a seventh consecutive day of work. Where both a daily and a weekly rule apply, hours are not counted twice: the employee receives the greater entitlement.
Which State's Leave Fund a Cross-Border Worker Pays Into
State paid family and medical leave programs are insurance schemes funded by contributions from employees, employers or both, administered by a state agency, and generally applying to work performed within the state. Coverage usually follows the same localization logic as unemployment insurance, so a worker is assigned to one state. Eligibility typically requires a minimum earnings history within that state's system, which means a recent mover may have contributed nowhere long enough to qualify.
When an Employer Must Register in a Second State
An employer that hires someone in a state where it has no presence typically acquires obligations in four directions at once: income tax withholding registration with the revenue department, unemployment insurance registration with the labor agency, workers' compensation coverage that satisfies that state's rules, and in many cases foreign qualification with the secretary of state. Each has its own timetable and its own penalty regime.