Although return-to-office mandates are in effect at many major companies, many of the remote work policies from the COVID-19 pandemic remain. An estimated 15 percent of jobs in the United States are now fully remote, triple the pre-pandemic average of about 5 percent. According to data from WFH Research and the U.S. Census Bureau, this shift represents one of the most significant changes to the labor market in recent decades. Some projections, such as those from McKinsey and Gallup, suggest the number could rise to 25 percent or more over the coming decade.
For mission-driven organizations like nonprofits, remote work offers multiple benefits. It broadens the applicant pool, improves flexibility, enhances employee satisfaction, and can be a useful recruitment tool when direct pay parity with private sector roles is difficult. However, the benefits of remote work can quickly be offset by compliance challenges stemming from state-by-state employment laws and taxation policies. Even hybrid models, designed to be flexible, can create legal ambiguity regarding jurisdiction.
Employment laws are primarily set and enforced at the state level. This means that when an organization hires a remote worker who lives and works in another state, that employee is typically cove
red by the employment laws of their home state. For example, if a California-based nonprofit hires a remote employee in Oregon, that worker is subject to Oregon labor law, including rules on minimum wage, meal and rest breaks, paid family leave, and workplace safety. This is equally true for tax obligations, which are generally owed in the state where the employee performs their work.
Remote work complications are not entirely new. Sectors like aviation, long-haul transportation, maritime shipping, and traveling sales have long grappled with employees operating across state lines. However, the scale and widespread adoption of remote work have magnified the legal and regulatory issues involved.
As remote work becomes more commonplace, several states have responded with tax-related policies that attempt to define where income is earned. Chief among these is the ‘Convenience of the Employer’ rule. This rule applies when an employee works from home out of convenience rather than necessity. If the employer is located in one of the states that enforce this rule, the employee may owe income taxes to both the employer’s state and their home state. While most states offer tax credits to avoid double taxation, confusion and compliance risks remain.
States that currently enforce the Convenience of the Employer rule include:
• Arkansas
• Connecticut
• Delaware
• Nebraska
• New York
• Pennsylvania
Some states, such as New Jersey, may apply related or reciprocal tax policies depending on where the employer is located and the terms of the remote work arrangement. Employers are encouraged to consult with a tax advisor or employment attorney to avoid inadvertently subjecting employees to dual tax obligations. (For more details, see the New York State Department of Taxation and Finance guidance.)
The complexity increases in hybrid arrangements. For instance, if an employee works part of the week at home in New Jersey and part at the employer’s office in New York, it can be unclear which state’s employment laws or tax rules apply. Some states weigh the majority of work time, while others consider the location of core duties. The absence of a federal standard leaves these decisions up to state regulators and often to legal interpretation.
In addition to employment law, nonprofits must consider their business ‘nexus’ in other states. Nexus refers to the legal presence a business or nonprofit has in a state. For nonprofits, this may be established by hiring remote employees, fundraising in the state, running programs there, or reaching a threshold of revenue or activity. Establishing nexus may trigger state registration, sales tax collection (if applicable), or unemployment insurance requirements. For example, if your organization fundraises heavily in Illinois, and also hires a remote worker based in Chicago, you may need to comply with Illinois employment and tax laws.
To manage this complexity, nonprofits should establish clear internal policies for remote and hybrid employees. These policies should outline how the employer determines the employee’s ‘home state’ for compliance purposes, based on where the majority of work is performed. Job offer letters should explicitly state that employment terms will be governed by the laws of the state where the employee lives and works, and should clarify how benefits eligibility and payroll taxes are handled. These policies can help create alignment, even if they cannot override state law.
Regular policy reviews, legal consultation, and transparent communication are all important. Many remote work disputes arise not from intent but from confusion—something that can be minimized by documentation, onboarding guidance, and clear role definitions. For an overview of state-specific remote work guidance, consult resources like the Multistate Tax Commission.
Managing a remote workforce is more than just providing a laptop and a Zoom account. It requires understanding where your employees work, what state laws apply to them, and how those laws affect your obligations as an employer. The challenge is real, but so is the opportunity. As nonprofit professionals, we know how important it is to stay focused on your mission without getting tripped up by regulatory details.
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The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.
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