Hiring a Remote Employee in Another State

The payroll onboarding screen asks for a state unemployment account number, for a state where your company has never filed anything at all. Not an application in progress. Not a number to look up somewhere. A blank required field, eleven days before a start date.

One hire. Nobody moved, no office opened, no lease was signed. And the filing side of the company changed in four or five separate places, run by four or five separate agencies, each with its own trigger and its own clock, and not one of them sends a warning first.

The confusing part is that the loudest question, the one every search result answers, is not the urgent one.

"Transacting business" is a term of art that nobody actually defines

The Secretary of State question is whether the company is now transacting business in the employee's state, because that is the phrase state law uses to decide who must register as a foreign entity. Almost no state defines it.

Texas is refreshingly blunt about this. Its foreign entity FAQ says that "Texas statutes do not specifically define 'transacting business;' however, section 9.251 of the BOC lists 16 activities that do not constitute 'transacting business.'" Then it gives the working rule anyway: "Generally, a foreign entity is transacting business in Texas if it has an office or an employee in Texas or is otherwise pursuing one of its purposes in Texas" (Texas Secretary of State, Foreign or Out-of-State Entities FAQs, read 22 August 2026).

That shape is what to look for in your own state: a statutory list of what does not count, and nothing at all about what does. California's version, Corporations Code section 17708.03, runs ten items long. Maintaining bank accounts. Defending a lawsuit. Selling through independent contractors. Conducting an isolated transaction completed within 180 days. Employees appear exactly once, in item (6), and only for "soliciting or procuring orders, whether by mail or electronic means or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts."

A developer writing code at a desk in Sacramento is not soliciting orders, and does not fit item 6 or any of the other nine. That is not the same as a finding that registration is required; it means the exclusion list does not dispose of the question. Neither will the filing office. The same Texas FAQ says that "the secretary of state cannot give a legal opinion as to whether a particular foreign entity is 'transacting business' in Texas," and that "if you are unsure whether registration is required, you should consult with your legal counsel." That is the standard answer from a filing office anywhere, and it is why this particular decision belongs with an advisor in that state rather than with a page like this one.

One more line from that section deserves to be copied somewhere you will see it again. Subsection (e) says the list "does not apply in determining the contacts or activities that may subject a foreign limited liability company to service of process, taxation, or regulation under the law of this state other than this article." Clearing the registration list clears the registration question and nothing else. Tax, employment and licensing each decide separately, and they do.

The payroll accounts run on a far shorter clock than the registration

This is the part that gets sequenced backwards. The Secretary of State filing reads like the parent obligation, with everything else hanging off it as detail. It is not the parent obligation. It is the slow one, and the short clocks are already running while you are reading its forms.

Compare them. Texas gives foreign entities "a 90 day grace period to register with the secretary of state after initially transacting business" before late fees begin. California's Employment Development Department says you must register as an employer "within 15 days" once you pay more than $100 in wages in a calendar quarter (EDD, Am I Required to Register as an Employer?, read 22 August 2026). Fifteen days against ninety, and the fifteen-day one attaches to the first paycheck rather than to the offer letter.

Expect at least two accounts in the employee's state, and often three. Income tax withholding sits at the state revenue department. Unemployment insurance is usually somewhere else entirely, at a labor or workforce agency, and carries an account number of its own that the payroll form asks for separately. Then, in a growing number of states, comes a third: a paid family and medical leave program, run by a third agency, with a third registration and a third portal login.

Colorado shows what that third one looks like when a single hire crosses into it. The Family and Medical Leave Insurance program states that "all businesses with at least one qualified employee are required to register with the FAMLI Division in My FAMLI+ Employer." Premiums run 0.88% of wages, split evenly between employer and employee, and businesses with nine or fewer employees remit only the 0.44% employee share each quarter. Headcount is counted company-wide rather than state-wide: with more than ten employees in total, "even if they work outside of Colorado," the full premium is due on the Colorado ones (Colorado FAMLI, Employers, read 22 August 2026). A five-person studio and a twelve-person agency therefore owe different amounts for the identical Denver hire, and what decides the difference is a headcount of people who have never set foot in Colorado.

Four questions decide which state's unemployment fund gets the wages

The unemployment side has a genuinely uniform answer, which makes it the easiest piece of this whole problem. The wording goes back to the September 1950 edition of the Manual of State Employment Security Legislation, and the US Department of Labor notes that "similar language now appears in all state laws," reproducing it in UIPL 20-04, Attachment 1 (read 22 August 2026). The objective, in the department's words, is "to cover under one state law all of the service performed by an individual for one employer, wherever it is performed."

Four questions, asked strictly in order, and you stop at the first one that answers:

1. Is the service localized in a state? It is if performed entirely there, or if the out-of-state part is "incidental to the individual's service within the state; for example, is temporary or transitory in nature or consists of isolated transactions."
2. If it is not localized anywhere, is the employee's base of operations in a state where some service is performed?
3. If not, is the place from which the work is directed and controlled a state where some service is performed?
4. If not, does the employee perform any service in the state where they live?

A remote hire who works from a spare bedroom and travels twice a year for a company offsite ends at question one. Those wages belong to their state, not to yours, and paying into your own state's fund instead satisfies nobody. Where the work genuinely splits between two states, the DOL note points to the Interstate Reciprocal Coverage Arrangement, which lets an employer elect to cover all of one person's service under a single state's law.

Workers' compensation does not travel with the policy

Your existing policy covers your existing state. Whether it reaches an employee sitting somewhere else is a question for your insurer first, and in the state-fund states it stops being an insurance question at all and becomes a filing with a state agency.

Washington makes the mechanics visible. Labor & Industries lists eight reciprocal states, Idaho, Montana, Nevada, North Dakota, Oregon, South Dakota, Utah and Wyoming, whose coverage it accepts for workers brought temporarily into Washington, with construction work carved out of the Montana and Nevada agreements. Even then the paperwork is not yours to file: your own state's workers' compensation administrator has to send L&I an Extraterritorial Coverage Certificate, and a confirmation letter comes back to you. Employees based anywhere else, or where the base cannot be determined, "may be required to have Washington coverage," which means a policy from L&I itself or certification as a self-insured employer (Washington L&I, Out-of-State Employers and Out-of-State Workers, read 22 August 2026).

Guessing here surfaces at the worst possible moment. That same page says that if an out-of-state employee covered by an out-of-state policy files a Washington claim, L&I rejects it and sends you to your own insurer. If the insurer then denies the claim because the injury happened in Washington, you are holding an injured employee and two refusals.

Read that page for what it is, though. It addresses workers brought temporarily into Washington and Washington workers travelling out, and the reciprocal agreements are described in exactly those terms. Even the paragraph on non-reciprocal states turns on "the type of work they're doing in Washington" and "how long and how often the employee will be in Washington." A person who lives in Washington and works from there permanently for an out-of-state employer is not the case that page answers, and nothing on it states how that person is handled. So do not read a reciprocal agreement as settling a resident remote hire. L&I keeps extraterritorial specialists on a direct line, 360-902-4817, and an inbox at OutofState@Lni.wa.gov, for exactly the question the page leaves open. That call belongs before the start date, not after an injury.

The twenty-day report, and the choice it forces once you have two states

Almost nobody outside payroll has heard of new hire reporting, and it carries the shortest deadline on this list. Federal law requires employers to report basic information on new and rehired employees "within 20 days of hire to the state where the new employees work," and some states require it sooner (HHS Administration for Children and Families, New Hire Reporting, page current as of 27 July 2026). The data feeds the National Directory of New Hires, which child support agencies use to issue income withholding orders.

The moment you have employees in more than one state this becomes a decision rather than a chore. Option A is to keep reporting each person to the state where they work. Option B is to pick one state and send everything there, which is not a matter of preference: you must register with HHS as a multistate employer, designate the chosen state, and transmit electronically or by magnetic tape no more than twice a month, with submissions 12 to 16 days apart.

Option B is itself a registration. Choosing it to reduce paperwork adds a federal filing and a fixed transmission schedule, which for a company with two employees in two states is usually the worse trade.

The tax threshold is a lesser-of test, and small payrolls meet the percentage side first

The revenue department keeps its own definition of your presence, unrelated to the Secretary of State's, and the arithmetic inside it catches small employers out.

California's is written down in Revenue and Taxation Code section 23101. A taxpayer is doing business in the state if compensation paid there "exceeds the lesser of fifty thousand dollars ($50,000) or 25 percent of the total compensation paid by the taxpayer." Read that as two figures joined by lesser, then run your own payroll through it. The same paragraph adds that the in-state amount is worked out under the payroll assignment rules of section 25133, so which state a salary counts in is a defined question rather than a matter of where the payment leaves from. Subdivision (c) directs the Franchise Tax Board to revise that dollar figure every year, and the board publishes the result as a table by tax year. On 22 August 2026 the newest row on that table was 2025, at $75,707, and the page carried a last-updated date of 7 November 2025 (FTB, Doing business in California) — no 2026 amount had been posted. Read the current year's row off that table when you run this. Do not use the $50,000 printed in the statute, and do not assume last year's indexed figure is this year's.

For a company with total payroll of $250,000, 25 percent is $62,500, which sits below the indexed figure, so $62,500 becomes the threshold that counts. One salaried hire can be the entire trigger. And an LLC doing business in California owes the state's $800 annual tax, which "will be due, even if you are not conducting business, until you cancel your LLC" (FTB, Limited liability company, read 22 August 2026). That is a recurring bill acquired by hiring one person.

Underneath the state layer there may be a city or county that wants its own registration from an employer with a worker inside its limits. That is the same four-tier stack that catches people at formation, running once more in a place where you have never filed anything.

What it costs to be the company that never registered

The reason this gets deferred is that nothing happens. No inspector arrives. The bill surfaces later, usually at the exact moment you need the state to do something for you.

Texas prices the delay openly. After the 90-day grace period, late filing fees are "determined by multiplying the number of whole or partial calendar years that have passed since the date the entity initially transacted business in Texas times the registration fee," and "for all other entities" — everything except nonprofit corporations and cooperative associations — "the registration fee is $750." Three whole or partial calendar years of quiet operation is $2,250 in late fees on top of the $750 registration itself. The FAQ works its own example: a for-profit corporation transacting business since June 2007 that registers in December 2010 owes $3,000 in late fees, $3,750 in total. Separately, the entity "cannot maintain an action, suit, or proceeding in a Texas court until it registers," the attorney general can enjoin it from transacting business in Texas, and it faces "a civil penalty equal to all fees and taxes that would have been imposed if the entity had registered when first required" (Texas SOS FAQ, read 22 August 2026).

California's section 17708.07 rewards reading in full, because of what it declines to say. An unregistered foreign LLC transacting intrastate business "shall not maintain an action or proceeding in this state," but failure to register "does not prevent" it from defending one. Members and managers are not liable for company debts "solely because" the company transacted business without a certificate. And the company is "deemed to have appointed the Secretary of State as its agent for service of process" for claims arising out of that business, meaning a lawsuit can be served on a state office rather than on anyone who works for you. If nobody has thought about where legal papers physically land, that is the same exposure as operating without a real registered agent, only sharper, because there is no address on file at all.

On the tax side California adds a flat penalty of "two thousand dollars ($2,000) per taxable year" against, among others, "a foreign corporation or a foreign limited liability company that fails to qualify to do business in this state" that is doing business there and then does not file a required return within 60 days of an FTB notice and demand, unless the failure is "due to reasonable cause and not willful neglect" (R&TC section 19135, read 22 August 2026). Not qualifying is the thing that puts an entity inside that sentence.

Notice which of these bite immediately and which lie dormant. Late fees accrue silently, for years, at a rate nobody bills you for. The courthouse door closes on the day you need to sue a client who has not paid.

What the sequence looks like when it goes well

Payroll registrations first, because they attach to the first paycheck and take days rather than weeks: withholding, unemployment, any state insurance program, and the new hire report inside 20 days. Workers' compensation before the start date, since no coverage can be applied backwards to an injury. Then the Secretary of State registration. Read its application form early for whether the new state wants a certificate of good standing from your home state attached, and how recent that certificate has to be, because it is a separate request to a separate office with a wait of its own.

Then the part that outlasts the hire. That second state now expects an annual or biennial report and a fee from you every year, on its own schedule, with a registered agent maintained at a street address inside it. Your company has two standings to keep clean instead of one, which is why checking your standing, which takes about five minutes, stops being an occasional errand and becomes something you do in both states each year. If the employee leaves, none of it ends by itself. Somebody has to file a withdrawal, and until they do the annual fees keep arriving for a state where nobody works.

Fees, thresholds and deadlines quoted here belong to the states named and were read on 22 August 2026. Yours will differ. This describes how the filings interlock; it is not tax or legal advice. For what you personally owe and to whom, start at the agency pages linked above, and where money or a lawsuit is already moving, talk to a professional in that state this week.