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A Brief Guide on Employee Benefits for Remote or Out of State Employees & State Law [Everything You Need to Consider]

employee benefits | A Brief Guide on Employee Benefits for Remote or Out of State Employees & State Law [Everything You Need to Consider] | MartinoWest October 2021

Both federal and state labor laws will influence the employee benefits you offer to your remote or out-of-state employees. Federal labor laws apply to every employer in the United States. However, for those working with remote or out-of-state employees, many executives wonder which state law applies for remote employees. Is it the state laws where the business is resident or the one where the employee is resident?

The employee benefits law for remote employees or out-of-state employees depends on the state in which the employee is working. So, if your business is in California, and you have an employee working remotely from Nevada, for instance, then for that employee, the Nevada labor state laws will apply.

1. Healthcare Insurance

Even if you’re working with remote employees, health insurance is among the mandatory employee benefits.

Many times, employers have the following challenges while determining the right health insurance plan for their remote employees:

  • Employees in multiple states mean that your company may not qualify for a common model for group health insurance policy.
  • You may have out-of-state employees who do not qualify for the corporate health insurance plans, but the company would still like to offer them insurance benefits.
  • Distributed employees may have their personal plans, which they’d want to maintain even over the course of employment.
  • Navigating multi-state insurance requirements is a challenge.

Working with a Professional Employer Organization (PEO) to help you navigate health insurance for remote employees means that your PEO of choice can provide flexible insurance plans such as Health Savings Accounts (HSAs), Health Reimbursement Accounts (HRAs) and Flexible Spending Accounts (FSAs). These are the three basic employee benefits required by law, specifically, the internal revenue code for eligible health expenses. Some differences between the three accounts are:

employee benefits | A Brief Guide on Employee Benefits for Remote or Out of State Employees & State Law [Everything You Need to Consider] | MartinoWest October 2021

Consideration

HSA

FSA

HRA

Account Ownership

Employee

Employee

Employer

Contribution

Employee, Relative or Employer

Employee and Employer

Employer

Contribution limit

$3,600 for individual plans and $7,200 for family plans   

$2,750   

Employer elects amount

Balance rollover

Yes

Up to $550 and only if the employer allows it

Varies by employer

Invest money in your account   

Yes

No

No

Report when filing your taxes

Yes

No

No

Nature of Premiums

LTC insurance premium

Post-tax insurance premiums

Expenses covered

Medical care, dental care expenses, vision, prescription drugs and over-the-counter drug expenses

Prescription medication, and over-the-counter medicines with a doctor’s prescription. Allows for reimbursement for insulin without a prescription.

Qualified medical and dental expenses, including medical expenses incurred to ease or prevent physical or mental ailment. But not expenses to maintain general health such as vitamins.

  • HRA and FSA Coordination

As an employer, you own and exclusively fund your employees’ HRA accounts. However, the employee has the option of still owning FSA accounts and contributing pre-tax dollars to help fund eligible medical expenses.

As an employer, you determine the important aspects of how your employees’ FSA and HRA accounts will be paired. You determine how much you will contribute to HRA, eligible expenses for reimbursement, and end-of-year rollover rules. You will also decide if your employees should first draw from FSA or HRA to pay for expenses covered by both accounts.

If your employee has a qualifying tax dependent relative, you may also choose to offer a Dependent Care Assistance Plan (DCAP). The account helps your employees to contribute pre-tax dollars to pay for costs directly related to taking care of a dependent.

  • Why is an Individual Coverage Health Reimbursement Arrangement (ICHRA) effective solution for employers with distributed employees?

A health reimbursement arrangement (HRA) is the most effective plan for employers with distributed employees. Employers can offer tax-free reimbursement plan for individual health premiums to all your employees according to:

  • The location, role, weekly hours or employee’s participation or non-participation in the company’s group health plan
  • Benefits specific to the state where the employee’s workstation is based. It enables employers to provide equal insurance to employees working from states with high premiums.

Benefits of working with ICHRA include

  • There are no minimum participation and contribution requirements while working with a reimbursement plan
  • Reduced administrative costs since employees will be the ones to purchase and manage a plan of their choice from local carriers and providers.
  • Reimbursement amounts are tax free to employees and tax-deductible to the company.

In order to offer HRA to your employees you’ll need to:

  • Determine which employees are eligible for the reimbursement program
  • Work with a suitable provider to create a plan and enroll your employees

MartinoWest can help you identify a suitable PEO that offers health savings accounts including HAS, HRA and FSA. Contact us today.

2. Workers’ Compensation

The requirements may vary from state to state. All states, except for Texas, require employers to provide workers’ compensation for employees, including those working remotely. If an employee is injured working on a task related assignment during official working hours, then the employee is eligible for compensation under workers’ compensation.

However, under remote circumstances, the employee will have to provide proof to show the injury incurred while they were working on a work-related issue. Even though as an employer you may not have any control over your remote workers’ working conditions, employers always interpret employee’s workspace hazards as employment hazards.  

Contact MartinoWest for more information on how to design Workers’ Compensation for your remote or distributed team. We can connect you with options suited for your business, including Pay-as-you-go workers’ compensation.

3. Social security and medicare taxes

Medicare and social security are employee’s benefits required by the federal government. In both cases, the employer matches the contributions of the employee. Social security benefits finance an employee’s income after retirement or permanent injury, while Medicare provides health insurance coverage to Americans over 65 years or those with qualifying medical conditions or disabilities.

4. Unemployment insurance

You will have to pay unemployment insurance premiums for each employee through the state where an individual employee is performing their services. Failure to pay unemployment insurance may expose you to state penalties.

5. Disability insurance

Disability insurance is also paid by a joint contribution of the employer and employee. Disability insurance is a legal requirement in some states such as California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island.

6. Voluntary benefits

Voluntary benefits for employees are insurance products such as life, critical illness, disability or accident insurance, legal services, identity theft protection and financial counseling. All these are offered by an employer and financed either in part or fully by the employee through payroll deferral.

As an employer, you have the liberty of designing voluntary benefits to fit your business model. Therefore, many voluntary benefits programs are not expensive because employers find out that employees are willing to pay for their coverage. Voluntary benefits enhance employee productivity and make employers stand out among job seekers.

Conclusion

As a small business owner, you often ask, “Do I have to offer my employee benefits?” Well, the quick answer is yes! Employee benefit requirements are among the laws that protect employees in the workplace. Employee benefits are known to boost performance, and positions the business to attract and keep top talents.

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