Remote Work Legal Issues: Employment Rights, Tax Implications, and Jurisdiction

The Legal Landscape of Remote Work

The rapid expansion of remote work—accelerated dramatically by the COVID-19 pandemic and now a permanent feature of millions of employment relationships—has created a host of novel legal issues that neither employers nor workers fully anticipated. When an employee sits at a desk in a corporate office in New York, the applicable laws are relatively clear. When that same employee works from home in New Jersey, in a coffee shop in Colorado, or from a family member's house in Texas for part of the year, the legal picture becomes substantially more complicated. Multiple jurisdictions may have legitimate claims to tax the income, multiple states' employment laws may apply, and the traditional assumptions underlying workplace regulation may no longer hold.

For workers, remote work raises questions about which state's minimum wage and overtime laws apply, whether meal and rest break requirements are being satisfied, who is responsible for home office equipment and expenses, how privacy is maintained when employers monitor remote workers, and what happens to benefits when work crosses state lines. For employers, the challenges include managing payroll taxes and withholding across multiple jurisdictions, ensuring compliance with the employment laws of every state where remote employees work, maintaining data security on distributed networks, and navigating the evolving rules around permanent establishment and nexus for income tax purposes.

The answers to these questions depend heavily on the specific facts of each situation: the employee's location, the employer's location, how frequently the employee travels, the nature of the work, and the specific laws of the relevant jurisdictions. Workers who want to understand their legal rights in a remote work context—and employers who want to manage their obligations—need to examine several distinct areas of law, each of which presents its own complexities.

Wage and Hour Laws in a Remote Work Context

Federal wage and hour law—primarily the Fair Labor Standards Act—applies to remote workers just as it does to office workers. Employers must pay remote employees at least the federal minimum wage and overtime for hours worked beyond 40 in a workweek, and they must maintain accurate records of hours worked. However, enforcing these requirements in a remote work context is more complicated, partly because the line between work time and personal time can blur when employees work from home, and partly because employers may have limited visibility into how employees are actually spending their time.

The FLSA requires employers to pay for all hours that are "suffered or permitted"—meaning time that the employer knows or should know an employee is working, whether or not it officially authorized that time. For remote workers, this means employers may be liable for overtime even if they did not ask the employee to work extra hours, as long as the employer knew or should have known the employee was working. Employers who implement automatic logoff systems, monitoring software, or explicit policies against unauthorized overtime are better positioned to manage this liability, but they must also ensure these measures do not prevent employees from performing necessary work.

State wage and hour laws add further complexity. Many states—including California, New York, Washington, and Massachusetts—have minimum wage and overtime rules that are more protective than federal law. If a remote worker lives in California, for example, California's daily overtime requirement (overtime kicks in after 8 hours in a single day, not just after 40 hours in a week) applies. Employers who fail to account for the employment laws of the states where their remote workers actually reside may face significant liability. Some employers have responded by requiring employees to disclose any changes in their work location and by establishing "approved states" in which remote work is permitted.

Multi-State Taxation: A Complex Web

State income tax obligations created by remote work are among the most significant legal challenges for both employees and employers. Most states impose income tax on wages earned by employees who work within their borders, based on the "source" principle: income is taxable in the state where the work is performed, regardless of where the employer is located. This means that a remote worker in Nevada who works for a New York employer owes no state income tax (Nevada has no income tax), while a worker in California who works for a Texas employer (which has no income tax) owes California income tax on all their wages.

Employer withholding obligations follow the same general principle: employers must withhold state income taxes for the state(s) where the employee actually performs work. An employer with remote workers spread across 10 states may need to register as an employer in all 10 states, withhold and remit taxes to each state, and file returns in each jurisdiction. The administrative burden is substantial, and failure to comply can result in penalties, interest, and back tax liability. Some states have enacted reciprocity agreements that simplify matters for workers who live in one state but work in another, but these agreements cover only a limited set of state pairs.

The so-called "convenience of the employer" rule used by a handful of states—most notably New York—creates particular complications. Under this doctrine, if an employee works remotely by their own choice (for their personal convenience) rather than because the employer requires it, the state where the employer is located can tax all the income, even income earned while the employee was physically present in another state. New York has aggressively enforced this rule against remote workers who moved out of state but continued working for New York employers. Workers considering a move to a different state while remaining employed by their current employer should seek advice from a tax professional about the potential state tax consequences.

Privacy, Monitoring, and Data Security

Employer monitoring of remote workers is a growing area of legal concern. When employees work from home, employers may use a variety of monitoring tools: software that tracks keystrokes, takes periodic screenshots, monitors websites visited, records video from webcams, or tracks the time employees spend in various applications. The legality of this monitoring depends on the applicable laws, the nature of the monitoring, and whether employees have been informed.

Federal law generally permits employers to monitor their own computer systems and employer-provided equipment with relatively few restrictions. The Electronic Communications Privacy Act (ECPA) prohibits interception of electronic communications but includes an exception for monitoring conducted with the consent of one party or on employer-owned systems used in the ordinary course of business. Most employers protect themselves by having employees acknowledge in writing that they have no expectation of privacy on company-issued devices or systems.

State laws on employee monitoring vary considerably and are generally more protective of employee privacy than federal law. Connecticut and Delaware, for example, require employers to provide written notice of electronic monitoring before engaging in it. Several states have enacted or are considering legislation specifically addressing monitoring of remote workers. Workers who are concerned about monitoring should review their employment agreement and any employer privacy policies they were asked to acknowledge, and they should understand that their personal devices are generally not subject to employer monitoring—making it important to keep work and personal devices separate.

Expense Reimbursement and Home Office Costs

Whether employers are required to reimburse remote workers for home office expenses—internet, phone, electricity, office equipment, and supplies—depends on state law. Federal law (the FLSA) does not generally require expense reimbursement as long as the reimbursement policy does not cause an employee's effective wages to fall below minimum wage. However, several states impose broader reimbursement obligations. California Labor Code Section 2802 requires employers to indemnify employees for all necessary expenditures or losses incurred in direct consequence of the discharge of their duties. This has been interpreted to require reimbursement for a reasonable portion of home internet, phone, and other costs that are necessarily incurred in performing remote work.

Illinois, Iowa, Montana, and several other states have similar expense reimbursement requirements. As remote work has become more widespread, more states have considered or enacted legislation addressing the issue. Workers in states with reimbursement requirements who have not been reimbursed for reasonable home office expenses should raise the issue with their employer or seek advice about their legal options. The sums involved may seem small in any given pay period, but over the course of a year of remote work, unreimbursed expenses can add up significantly.

On the employee tax side, the rules changed significantly with the Tax Cuts and Jobs Act of 2017, which eliminated the federal deduction for unreimbursed employee business expenses for tax years 2018 through 2025. Remote workers who are employees (not self-employed) can no longer deduct home office expenses on their federal returns, even if they work exclusively from home and even if their employer does not reimburse them. Self-employed individuals and independent contractors may still deduct qualifying home office expenses. Some states have not conformed to the federal change and still allow employees to deduct unreimbursed business expenses on state returns.

Jurisdiction and Choice of Law in Remote Work Agreements

When a remote worker and an employer are located in different states, a fundamental question arises: which state's law governs their employment relationship? Employment agreements often include choice-of-law provisions specifying that disputes will be governed by the law of a particular state. Courts generally enforce these provisions, particularly when the chosen state has a reasonable connection to the relationship, such as being the employer's principal place of business.

However, choice-of-law provisions are not always enforceable with respect to protective employment statutes. Many states' employment laws—including California's extensive labor code protections—apply to work performed within the state regardless of what the employment contract says about governing law. A California remote worker cannot be deprived of California's labor protections simply because their employment agreement specifies that New York law governs. Courts in such cases will typically apply the law of the state most protective of the employee's rights, or the law of the state with the most significant relationship to the employment, depending on the applicable choice-of-law doctrine.

Non-compete agreements raise particularly acute choice-of-law issues in the remote work context. California broadly prohibits non-compete agreements; other states enforce them subject to reasonableness requirements. When an employee subject to a non-compete under their home state's law moves to California and begins working remotely, or when a California resident takes a job with an out-of-state employer that includes a non-compete clause, the enforceability of that agreement may be uncertain. The Federal Trade Commission issued a rule in 2024 broadly banning non-compete agreements for most workers, though the rule's legal status has been contested in the courts. Workers subject to non-compete agreements who are considering a job change should consult an employment attorney about the enforceability of those agreements in their state.

Benefits and Leave Rights for Remote Workers

Remote workers are generally entitled to the same benefits and leave rights as their in-office counterparts, subject to the laws of their state of employment. The FMLA's eligibility requirements—including the requirement that the employee work at a location where the employer has 50 or more employees within 75 miles—have been interpreted by the Department of Labor to apply to the remote worker's home office as the worksite. This means that a remote worker who works from home may not qualify for FMLA leave if fewer than 50 of their employer's employees work within 75 miles of the worker's home. This can be a significant gap in protection for remote workers whose colleagues are scattered across the country.

State family and medical leave laws may fill this gap in some cases, as many apply different eligibility criteria than the federal FMLA. Workers' compensation for remote employees is also an evolving area. Workers' compensation generally covers injuries that arise out of and in the course of employment, and courts and administrative agencies have increasingly extended coverage to remote workers who are injured while performing work tasks at home. However, the home office creates difficult factual questions about whether a given injury occurred during work activities, and employers and workers alike should be aware of the specific rules in their state.

As remote work continues to evolve, so does the legal framework governing it. Federal and state legislatures, regulatory agencies, and courts are actively developing new rules that address the unique features of distributed work. Workers and employers who want to stay current should follow developments from the Department of Labor, the IRS, state labor agencies, and industry-specific regulators. The legal landscape of remote work is still being written, and staying informed is the best way to protect your rights and manage your obligations.