October 23, 2026
Hiring your first employee in a new state makes the company an employer in that state. Before the first payroll you'll usually need to register for the state's withholding tax and unemployment insurance and extend workers' compensation coverage. You'll also want to consider whether the company needs to register to do business there. The employee is then covered by that state's wage, leave, final pay and expense rules, not your home state's, and the job posting itself may have to include a pay range. Most seed-stage companies handle the registrations through a PEO or a multistate payroll provider, but the company still owns the compliance.
Key takeaways
The legal test is where the employee physically works, not where the company is incorporated or headquartered. A Delaware corporation based in New York with an engineer working from home in Denver is a Colorado employer for that engineer.
That triggers four registrations in most states. The company needs a state withholding account with the state's tax agency, so it can withhold and remit the employee's state income tax (a few states, such as Texas and Florida, have no wage income tax). It needs a state unemployment insurance account, because unemployment taxes are paid to the state where the employee works. It must report the new hire to the state's new hire directory, usually within 20 days. And it must have workers' compensation coverage that applies in that state, which often means asking your carrier to add the state to your existing policy. Some states add more: Colorado, for example, requires employers to register for and remit premiums to its paid family and medical leave insurance program, and several other states run similar programs.
It depends on the situation. A Delaware corporation has to register, or foreign qualify, in a state where it is "doing business," and states define that phrase differently and often loosely. One employee working from home is a gray area. Some states treat any regular employee as doing business, while others look for more, such as an office, a sales team, inventory or contracts negotiated in the state. A physical presence, such as an office or a growing team, points more clearly toward qualifying. Qualifying also has ongoing costs: a registered agent in the state, annual reports and fees, and in some states a minimum franchise tax. Because the answer turns on the state and on what the employee actually does, look at the specific facts with your lawyer when you make the hire, and revisit the question as your presence in the state grows. See Do I Need to Foreign Qualify My Delaware Startup in My Home State?
An employee in a state can also create nexus, a connection strong enough for the state to require the company to file income or franchise tax returns, and in some cases to collect sales tax. Whether that happens depends on the state's rules and the employee's activities, so ask your tax advisor before the hire starts.
Nearly all of them. Minimum wage and overtime follow the state, and several states set a higher salary threshold than federal law for treating an employee as exempt from overtime, including California, New York, Colorado and Washington. An engineer who is exempt in one state at a given salary may not be in another. See Exempt vs Non-Exempt.
Paid sick leave is required in many states and some cities, and paid family leave programs funded by payroll premiums exist in states including New York, New Jersey, Massachusetts, Washington and Colorado. Final pay deadlines differ too: California requires final wages immediately at a firing, while New York allows the next regular payday.
Some states require a written hiring notice. New York requires a wage notice at hire stating the pay rate, pay day and other details, and California requires a similar notice for non-exempt employees under its Wage Theft Prevention Act. States also require workplace posters; for remote employees, deliver them electronically in a place the employee can always reach.
Expense reimbursement is the rule that surprises remote-first companies. California requires employers to reimburse all necessary business expenses, which courts have applied to a reasonable share of a personal phone bill and required home office costs. Illinois has a similar statute, and a handful of other states, including New Hampshire, Montana and the Dakotas, impose reimbursement duties. A monthly stipend for phone and internet is a common way to comply.
A growing number of states require employers to include a good-faith pay range in job postings. Colorado applies its rule to any employer with at least one employee in the state and to remote jobs that could be performed there, and requires the range, a general description of benefits and the application deadline. New York applies to employers with four or more employees and covers jobs performed at least partly in New York or that report to a supervisor or office in New York. California, Washington and Illinois apply to employers with 15 or more employees. Massachusetts, New Jersey, Minnesota, Maryland and others have their own versions.
For a remote role, the practical answer is to post a good-faith range on every listing. A New York company posting a fully remote job is likely covered by New York's law because the role reports to New York, and, once the company has at least one Colorado employee, by Colorado's because the job could be done there.
Enforceability of restrictive covenants depends on the employee's state, and the trend is toward restricting them. California voids employee non-competes and most non-solicits, Minnesota bans non-competes, and Colorado permits non-competes only for highly compensated workers and requires a separate written notice of any non-compete or customer non-solicit. We don't recommend non-competes for startup employees in any state. A CIIAA protects your confidential information and inventions, and a narrow 12-month employee non-solicit is all most startups need, except in California. See Non-Compete Clauses.
Mechanically, wages are generally taxed by the state where the work is performed, and the employer withholds for that state. A few states, most notably New York, apply a convenience of the employer rule: if a nonresident employee's primary office is in New York and they work remotely elsewhere for their own convenience, New York treats those remote days as New York workdays unless the employer has established a bona fide employer office at the remote location. That rule matters when a New York employee moves away but stays assigned to the New York office. Whether it applies to a given employee, and how to handle any resulting double taxation, is a question for your tax advisor and payroll provider.
A professional employer organization (PEO) becomes a co-employer for payroll and benefits. It runs payroll, files state taxes, offers large-group benefits and can often handle new-state registrations quickly, which is why many seed-stage companies use one. The company remains the employer for everything else, including classification, pay transparency and terminations. A good multistate payroll provider without the co-employment layer does much the same for companies that already have benefits in place.
An employer of record (EOR) becomes the legal employer and leases the worker back to you. EORs are mostly used for hires outside the US, where the company has no entity; see How Do I Hire Someone Outside the US? For a US state, registering directly or through a PEO is usually cheaper than an EOR.
Example. A Delaware C corporation headquartered in Brooklyn, already qualified in New York, with eight employees, wants to hire its first engineer, who lives in Denver. The founders post the role as remote with a range of $160,000 to $190,000, a short description of the benefits and an application deadline. That posting satisfies New York's rule, which covers a role reporting to a New York supervisor. Colorado's rule doesn't reach it yet, because the company has no Colorado employees, but the same posting will comply once it does.
The candidate accepts on day 1 with a start date of day 30. On day 2 the founders review with their lawyer whether the hire means the company should register to do business in Colorado, which depends on the facts. The company then registers for a Colorado withholding account, a Colorado unemployment insurance account and the state's paid family and medical leave program, which can take one to three weeks to produce account numbers. Its insurance broker adds Colorado to the workers' compensation policy. Because the company uses a PEO, the PEO handles several of these registrations and reports the new hire.
The offer letter is at-will, with no probation period, and pays $175,000, which clears Colorado's exempt salary threshold. The company adds a Colorado paid sick leave policy, delivers the required Colorado notices electronically, and gives the engineer an ISO grant under the existing plan. The engineer signs the company's CIIAA, with no non-compete. The engineer starts on day 30, and the first paycheck goes out on the next regular payday with Colorado tax withheld.
For more, see How Do I Hire Someone Outside the US?, Employee Onboarding for Startups, What Should Founders Know About Startup Employment Law? and Startup Employee Handbook.
If you're hiring your first employee in a new state, contact us and we'll help you get the paperwork in order before day one.
