In the early days of COVID-19, state and local governments issued wide-ranging “stay-at-home” orders. In response, cities adopted or expanded flexible workplace policies to enable remote work. Now, nearly two years later, many employees are still working remotely, and some are even working from bordering states. Whether a city currently has any employees working remotely or not, requests for telecommuting arrangements from current employees and future applicants moving forward will likely increase. For some, allowing employees holding certain positions to work remotely may provide the competitive advantage needed to attract and retain employees in the current job market.
Many remote work policy considerations exist irrespective of where the work is being performed. As the location of the work and workers change, additional considerations are required for Minnesota cities to ensure compliance with the laws of any states from which employees are working. A frequently asked question is: When exactly do cities need to consider out-of-state remote work issues? What if an employee works from Wisconsin for just a week? A month? Six months?
Short durations of out-of-state remote work may be unlikely to generate issues, but the often true and always unfortunate answer is that it depends. The answer depends not only on the type of employment issue (e.g., payroll taxes, leave eligibility, etc.), but also on the state, or even the city, in question. These issues are discussed in more detail below, but cities should be aware that state laws often do not define a relevant “threshold” for determining whether a city is required to comply with that law as it pertains to a particular employee. Of course, that does not necessarily mean the law does not apply, or that it would not be determined by the relevant authority to apply, and no bright line rule exists for making such determinations. In those instances, the conservative advice may be to err on the side of caution and comply with whichever state’s law is more beneficial to the employee.
Border state laws are often similar to or laxer than Minnesota law, such that compliance with Minnesota law will suffice. But the legal landscape around these issues evolves quickly, and the likelihood that employees could work from states beyond the neighboring four is increasing. There are some key issues Minnesota cities should consider if employees work from a location in a neighboring state, which may involve a patchwork of federal, state, and local laws. Cities should review each remote, out-of-state work arrangement with the issues below in mind, and consult their city attorney with any questions.
Employee classification, minimum wage, and overtime
Under the federal Fair Labor Standards Act (FLSA), employees must be paid minimum wage and overtime when they work more than 40 hours a week. Employees who meet certain criteria and are paid above a threshold salary are “exempt” from these requirements. Cities also must comply with applicable state laws, which may have different eligibility criteria or payment provisions.
Not all states recognize the same categories of exempt work as the FLSA, and some may have a higher salary threshold. Cities need to understand the type of work that can be considered exempt and the minimum salary requirements in all states where their employees work. For example:
- Minnesota does not exempt computer systems analysts, programmers, software engineers, or other similarly skilled workers from its minimum wage or overtime requirements like federal law does.
- Wisconsin has a lower salary threshold for most exemptions, but requires workers to spend 80% of their workweek devoted to exempt duties, which is more stringent than the FLSA’s requirement (Admin. Code DWD §274.04(1)).
For nonexempt employees, states and localities may set a higher minimum wage than Minnesota, though Minnesota’s current minimum wage is higher than those of its four neighboring states. Local minimum wage ordinances could also come into play, as could the minimum wage laws for states in other parts of the country if employees relocate farther afield. Each jurisdiction has rules that define both when an employer and individual employee become subject to minimum wage laws. Cities must analyze wage and hour laws on a case-by-case basis.
The FLSA mandates overtime based on hours worked in a week. States also have different rules for when nonexempt workers may be owed overtime. Some states’ requirements essentially mirror the FLSA, whereas others are notably different and include things such as daily overtime requirements. None of Minnesota’s four neighboring states require daily overtime, but California and Colorado are examples of states that do (see Cal. Lab. Code § 510; 7 Colo. Code Regs. § 1103-1:4 (Rule 4.1)). Also, the FLSA has various exceptions to overtime that may or may not be consistent with state law. For example:
- Government employers can offer compensatory time (“comp” time) as an alternative to overtime in certain situations.
- In other cases, public employees who occasionally work part-time for the same public agency may be denied overtime under the FLSA, but state law could differ.
These are just a few examples of wage and hour implications when workers live in one state and work in another.
Breaks and time away from work
State and local law may require more generous breaks during the workday, or job-protected leave rights, than cities currently face under Minnesota and federal law. Meal and rest break laws address the types of required breaks, their frequency, and whether the breaks must be paid. North Dakota, for example, requires employers to offer meal breaks after five hours of work, as long as at least two employees are on duty (N.D. Admin. Code 46-02-07-02, Par. 5). Mandatory accommodations for pregnant employees also typically include more frequent rest and bathroom breaks.
Employees may be eligible for paid or unpaid leave for any number of reasons addressed by state or local law. States commonly have laws giving employees time off to vote, serve on a jury, testify or participate in legal proceedings, seek protection for reasons related to domestic violence, fulfill military duties, and attend activities related to their children, among other things. Employers need to be familiar with reasons for job-protected leave and any limitations on leave administration. Some leave laws clearly state when an employee is eligible to accrue or take leave time, others rely on a statutory definition of “employer,” and yet many will appear silent on the issue.
In Iowa, for example, employees are eligible for pregnancy disability leave regardless of how long they have been employed (Iowa Code §§216.2, 216.6). This means while the federal Family and Medical Leave Act and Minnesota’s Pregnancy and Parenting Leave Act (Minn. Stat. §§181.940 – 181.944) provide for pregnancy leave only after an individual has been employed for a year (and met other criteria), that same individual may be entitled to pregnancy disability leave shortly after being hired if living in Iowa. However, in Minnesota, pregnant employees are entitled to certain other accommodations, such as more frequent restroom/meal breaks, seating adjustments, and limits on lifting over 20 pounds, regardless of whether they have worked for the employer for 12 months. Pregnant employees may have additional accommodation rights under the Minnesota Human Rights Act as well.
Iowa also mandates that employers provide veterans with a holiday on Veterans Day, unless doing so would impact public health or safety or impose an undue burden (Iowa Code § 91A.5A).
States and localities are increasingly passing paid sick leave laws. Whether an employer is subject to a particular state or local law often depends on how many employees it has within the state or locality, or the amount of time the employee spends working in the state or locality. For example, the Duluth, Minneapolis, and St. Paul sick leave ordinances cover employees who work over a specified number of hours within the geographical boundaries of those cities. Some states – none bordering Minnesota as of yet – have broader employee protections to consider.
Payroll and administrative matters
Several administrative matters are dependent on state law. Payroll and benefits departments need to be aware of which state laws apply to each employee. To state the obvious, cities need to be aware of where their employees live and where they perform their work to ensure compliance.
Payroll and other benefits
Payroll tax and benefits requirements and eligibility are complicated issues. They are ordinarily determined by a combination of the employee’s and the employer’s presence in the state. Employees may owe income tax in the state where they live, for example, and cities need to be aware of withholding requirements. The amount of time spent and/or income earned in a given state before tax implications arise varies widely between states, including how a state defines residents versus nonresidents and the tax treatment of each.
Generally, wages earned by nonresidents of Minnesota while physically in the state may be taxable, while nonresidents working in another state for a Minnesota employer are not taxed on that income by Minnesota. Even so, nonresident employees may need to file a Minnesota income tax return if their gross income meets the minimum filing requirement unless they fall under an exception, such as reciprocity. Income tax is an area where many states’ tax agencies, including some border states, issued guidance addressing tax issues arising from temporary COVID-19-related telecommuting arrangements. A few states, including Wisconsin, issued such guidance, but the effective dates of relief have since passed. For example:
- Wisconsin has historically used the physical presence test to determine whether an employee’s income is sourced to Wisconsin. Employees residing in Wisconsin and temporarily telecommuting for a Minnesota employer are subject to Wisconsin income tax during the period of telecommuting. From March 13, 2020, through Dec. 31, 2021, Wisconsin provided nexus relief and relaxed enforcement on out-of-state employers that would otherwise be required to file Wisconsin withholding tax and income tax returns, if their only Wisconsin activity was having an employee working temporarily from the employee’s home. As of Jan. 1, 2022, the nexus relief no longer applies. Even so, employers may not be required to withhold income tax if it does not otherwise have sufficient business contacts with Wisconsin (Wisconsin DOR Withholding Tax Update 2021-1).
- Iowa individual income tax and withholding requirements were not modified by the pandemic. Compensation for personal services rendered within the state of Iowa is subject to Iowa income tax less applicable exemptions. Iowa published guidance related to corporate income tax stating that the presence of one or more employees working remotely from within Iowa solely due to the pandemic would not be considered, by itself, sufficient business activity to establish Iowa corporate income tax nexus. Iowa’s position on business nexus only applies to states of emergency and it may apply different rules if and when emergency orders are lifted (Iowa Department of Revenue — COVID-19).
- North Dakota and Minnesota have an income tax reciprocity agreement preventing both states from taxing the same income. Employers are generally required to withhold North Dakota income tax from wages paid to an employee if the employee performs services within North Dakota and the wages are subject to federal income tax withholding. If the employee qualifies for reciprocity, generally only the employee’s home state will tax the income received from an employer in a reciprocity state. North Dakota initially published guidance like Wisconsin stating it would not assert income tax nexus on nonresident employers solely because of North Dakota residents telecommuting due to COVID-19. The guidance has since been removed. Wages paid to nonresidents of North Dakota performing employment duties in North Dakota may fall under North Dakota’s nonresident mobile workforce exclusion if the nonresident employee works within the state for twenty or less days during the tax year (ND Income Tax Withholding Guidelines 12/2021).
- South Dakota does not impose income tax on individuals (South Dakota DOR individual taxes website).
For more information on the business tax nexus generally, see this survey of States’ Approach to Temporary Telecommuting.
For more information on out-of-state remote work, see Out-of-State Remote Work Creates Tax Headaches for Employers.
Wage payment laws may dictate earnings statement content, final paychecks timing, and permissible deductions. Cities must ensure they are properly participating in applicable state unemployment compensation programs. States generally adopt a four-part test to determine which state unemployment laws apply, but the vast majority of states (including all of Minnesota’s border states) have also signed on to the Interstate Reciprocal Coverage Arrangement. This arrangement permits employers in multiple states to centralize unemployment compensation payments in one jurisdiction, provided adequate notice is given to others. Regardless of where the payments are going, though, cities should ensure they register with required state agencies.
For more information generally, see this blog on Multi-Site Nonprofit Employers and Unemployment Coverage, part 2.
Workers’ compensation laws vary significantly among states. Employees working outside of Minnesota permanently or on an extended basis may require additional coverage. Contact your city’s agent or your League of Minnesota Cities Insurance Trust underwriter for assistance.
Employees moving away from Minnesota may become ineligible for health insurance and other benefits. Cities should have clear communication with their employees about these issues, so employees can make informed decisions. Consult your health care provider or broker to obtain language about how the city’s group health insurance program will cover (or not cover) employees working out of state.
When employees are in the office, their furniture, technology, and office-supply needs are met by the employer. With employees working at home, cities need to reconsider the expenses incurred and how they are paid. Some states have more clear guidance on this than others. For example:
- Iowa requires employers to reimburse employees for expenses authorized by the employer within 30 days of an employee submitting a claim for reimbursement (Iowa Code §91A.3).
- South Dakota requires employers to “indemnify an employee … for all that the employee necessarily expends or loses in direct consequence of the discharge of the employee’s duties.” (D. Codified Laws § 60-2-1).
These laws likely extend to expenses such as home internet and cell phone plans. Cities may be required to pay for the furniture employees in those states (and others with similar laws) have had to purchase to work from home, as well as printers, paper, and ink. Cities need to review state laws to understand which expenses are their responsibility and when expense reimbursements must be made.
Aspects of the employment relationship managed by human resources, or human resources in conjunction with supervisors and managers, are also impacted by workers being out of state. These topics may involve administrative departments as well.
Wage statements and notification of employment terms
Cities should communicate the terms and conditions of employment with employees at hire and throughout the employment relationship. These obligations arise from so-called “wage theft” laws, which direct employers to disclose pay and benefits-related information in specific ways and at specific times. In Minnesota, for example:
- Cities must give all new hires a written statement outlining items such as the rate and frequency of pay, status as exempt or nonexempt, and paid-time-off benefits and policies (Stat. §181.032).
- These statements must be updated if the specified terms change during employment.
- Employers must maintain a list of personnel policies with brief descriptions of each policy and the dates provided to each employee.
Cities need to be aware of similar requirements for any states where they have employees working. This is an area garnering more attention at the local level, so pay particular attention to localities that actively regulate employment within their boundaries.
States impose different restrictions and obligations on conducting and using criminal (and other) background checks. These restrictions and obligations should be checked against the Criminal Offender Rehabilitation Act in Minnesota (Minn. Stat. ch. 364). States may, for example:
- Mandate the content of disclosures and authorizations required before employers can obtain background checks.
- Require cities to follow specific procedures before taking adverse action as a result of a background check. These procedures are designed to let employees explain the circumstances to counterbalance negative findings in a background check report.
- Have varying standards for determining job-relatedness. Wisconsin requires proof that an applicant’s arrest or conviction record “substantially relates” to a job before an employer can deny an applicant a job on the basis of a criminal background check (Stat. §§111.322; 111.335).
- Require cities to perform background checks on employees in sensitive positions. Although states generally determine mandatory background checks for their own employees and employees of local government units within that state, cities need to ensure that their employees outside of Minnesota are not also subject to mandatory background checks in resident states.
Discrimination laws vary from state to state. Some states have more expansive anti-discrimination protections than Minnesota. For example:
- Wisconsin prohibits discrimination on the basis of an individual’s arrest or conviction record, neither of which is covered by Minnesota anti-discrimination law (Wis. Stat. §§ 111.322; 111.335), although Minnesota’s Criminal Offender Rehabilitation Act (Minn. Stat. ch. 364) may have protections in some cases. Wisconsin defines “employer” in the cited subchapter to broadly include “. . . any other person engaging in any activity, enterprise, or business employing at least one individual.”
- North Dakota prohibits discrimination based on “participation in lawful activity off the employer’s premises during nonworking hours which is not in direct conflict with the essential business-related interests of the employer” (D. Cent. Code § 14-02.4-03). An “employer” is defined by this section to include a person, wherever situated, who employs one or more employees whose services are to be partially or wholly performed in the state.
- Some states also may impose a greater duty to provide reasonable accommodations, whether because of disability, religion, or pregnancy, such as the leave requirement in Iowa mentioned above.
States often grant employees rights regarding the review and content of their personnel files. These laws can dictate the frequency and timing with which cities must make an employee’s personnel file available for inspection. They also create processes for employees to dispute adverse information in the file. Wisconsin, for example, grants past and present employees the right to view and copy their personnel records at least twice each calendar year (Wis. Stat. §103.13).
Minnesota cities should be aware of the topics above, understanding that sometimes another state’s law will be more stringent than Minnesota’s, and other times less. Each situation may present unique questions. An employee may fall under one state law for one purpose and a different state law for another. Some of the laws only cover entities with a threshold number of employees working in the state. Others only impact certain types of employment or employment over a threshold number of hours. And of course, some laws do not apply to government employers from a different locale.
Above all, cities need to know where their employees are working to ensure legal compliance. Cities should review their compliance with the laws of the states where remote workers already live. They should adopt policies requiring advance notification and approval before employees currently working from home move to a new remote work location. Creating and implementing a remote work policy that addresses these issues, in addition to other employer expectations, can help alleviate concerns surrounding remote work arrangements and ensure a mutually suitable arrangement for cities and their employees.
To review the laws in Minnesota and its neighboring states, visit the websites of each state’s legal code: