How to Manage Compensation Across State Lines

Opening an office in a new state is an exciting milestone—but it inevitably comes with a number of compliance hurdles. Arguably the most important of these—at least to your employees—is compensation. Many states have their own unique set of guidelines and regulations around payroll and taxation, so it’s important to be aware of these as you begin to hire or relocate employees to your new office location.

Here are four things to keep in mind when making sure your out-of-state compensation practices are compliant:

1. State Minimum Wage

Even though the national minimum wage has hovered at $7.25 an hour since 2009, this merely serves as a baseline. Many states and cities have their own minimum wage, which can be as high as $15 per hour. If you’re opening an office in a city that has a higher minimum wage than the national standard, you’ll need to make sure that you are in compliance with this guideline throughout your local workforce.

If the location of your new office requires a higher minimum wage, you’ll also have to take this into account for higher level positions. The market rate for each position will likely scale with the minimum wage, and you may have to refactor your payroll budget to stay competitive. Be aware of local laws, and use this information to inform your recruiting and payroll budget.

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2. Varying Cost of Living

While many cities with a high cost of living have corresponding minimum wage laws, this still doesn’t always measure up to the expenses that employees face. When recruiting for your new location, be sure to stay in tune with local market rates and understand how income affects quality of life in this location. This could mean that some remote and headquarter employees at the same level may need to be paid different salaries in accordance with the cost of living in each city.

If you’re on a small team, recruiting and hiring remotely can be a challenge. Make sure your compensation package is tailored to the needs of local prospects—both in terms of income as well as benefits. For example, if you are opening an office in a large metropolitan area, consider offering free or pre-tax transportation benefits.


3. State Tax Deductions

Compliance with state taxes may be the biggest headache you face when opening a remote office. It’s crucial that you comply with local taxation laws—which can get messy when it comes to the unique deduction rules and income tax brackets of each state. Ensure that you are up to speed on the local regulations and are aware of anything that differs from your headquarter location.

It may be best to work with a local accountant who understands the ins and outs of local taxation laws—especially if you’re working as a remote or one-person HR team. Relying on someone who knows the lay of the land can help you avoid missteps in the long run.


4. Multi-State Commuters

Be aware of regulations regarding employees who live and work in separate states. Commuting employees who cross state lines can be subject to reciprocity rules, which require them to pay taxes in both states. Stay attuned to the commuting habits of your employees and make sure this taxation is properly documented to ensure you are in compliance with local laws in both states.

Multi-state employment is a huge step in a company’s growth, so make sure you’re fully prepared. Stay in close communication with your state’s department of labor. They can provide resources and guidance on local laws and help you avoid any pitfalls. However, implementation is often easier said than done—particularly if you are managing the process remotely. For most HR departments, growing your company’s presence across state lines requires a well thought out process and the right toolset.

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