The rise of remote work has been a game-changer for Alaska businesses. Suddenly, a small business anywhere in Alaska can hire a talented accountant in Portland or a skilled developer in Denver without either party relocating. But before you send that offer letter, there is a legal reality every Alaska employer needs to understand: You now have to investigate and understand the laws of the state where your employee resides.
Hiring a remote worker who lives outside of Alaska means you are not just an Alaska employer anymore. You may now be subject to the labor, tax, and insurance laws of whatever state your employee calls home. Here is what that means to you.
Taxes: Alaska’s Tax Advantage Doesn’t Necessarily Travel
Alaska is one of the few states with no personal income tax, which is great news for your Alaska-based employees. But if your remote worker’s home state has an income tax, you may be legally required to register with that state and withhold it from their paycheck. Some states consider the appropriate taxation to be that of the business location the employee is associated with (such as your Alaska-based office), while others consider taxes applicable based on where the work is performed. Other states may simply focus on the employee’s residency, which may or may not have a straight-forward test. It can be even more complicated when employees are splitting time between locales, such as in the case of Alaska’s “snowbirds.” Investigating and assessing the potential tax liability and responsibilities upfront should be an important consideration prior to beginning or modifying the employment relationship.
Unemployment Insurance: A Four-Factor Test
Unemployment insurance (SUI) is another area where the “where the work happens” rule may apply. If your employee is primarily based in another state, you may need to register for and pay unemployment taxes in that state.
The U.S. Department of Labor uses a four-factor test to sort this out:
- looking at where the work is localized,
- where the employee’s base of operations is,
- where direction and control come from, and
- where the employee resides.
For most fully remote out-of-state workers, the answer will likely point to their home state.
Workers’ Compensation: No Shortcuts Here
Generally, employers must carry workers’ compensation coverage that complies with the laws of the state where the employee is physically working. An Alaska-based policy does not automatically cover an employee working from their home in another state on a prolonged or permanent basis. Clear communication with your insurance broker regarding employees who are full-time remote workers, or those who spend a substantial amount of time working out of state, is imperative. You may also want to educate yourself on the applicable laws, which include the interpretation of a workplace injury, and any return-to-work obligations or other requirements that may differ from Alaska law.
Labor Laws: A Cafeteria of Rules
Again, depending on the employee’s residency, your remote employee may be entitled to the labor law protections of another state, which may be more varied or stringent than Alaska’s requirements. A few areas to look for differences include minimum wages, overtime requirements, accrual of paid time off, sick leave, at-will employment, maintaining employment records, and separation or termination obligations, including severance. If you have an employee handbook or established policies, they should be reviewed for compliance and consideration of how such policies may be applied to remote workers. State anti-harassment and discrimination laws may also be different, and employers should be aware that they may be subject to the jurisdiction of other state investigative agencies, including local departments of labor, equal rights commissions, ombudsman’s offices, or state-based OSHA.
State Business Laws: More Headaches
Depending on the nature of your business, you may need to determine whether the nature of the work your employee is performing requires a state-specific license, business license, or corporate registration, and whether your business may need to pay any corporate taxes, maintain special insurance, or post a bond, prior to your employee performing work. Some examples include real estate licenses, banking and securities registration, medical or other trade licensing.
The Bottom Line
Remote hiring is a tremendous opportunity for Alaska businesses and their employees, but it comes with a real compliance obligation. Getting it wrong can mean penalties, back taxes, and uncovered liability. Before you bring on your first out-of-state remote employee – or allow an existing employee to move out of state and continue to work for you, talk to an attorney who understands both Alaska law and can assist with the multi-state compliance landscape. Consider whether risks may be mitigated and expectations firmly established by an employment agreement or other contract and determine whether given the additional compliance obligations remote work really is the best fit for your organization.
The attorneys at Birch Horton Bittner & Cherot advise Alaska businesses on employment law, business formation, and regulatory compliance. Contact us to discuss your specific situation before you hire.