What Happens If You Have Just One Remote Employee? — 2025 Employer Payroll & Labor Law Obligations Explained
“Does labor law still apply if my employee works from home?” “My company is based in New York, but my employee lives in another state — is that a problem?” As of 2025, remote work is no longer a perk or exception.
Even a single remote employee can trigger labor law compliance, payroll tax obligations, and multi-state registration requirements for employers — and ignoring them often leads to penalties and audits.
1️⃣ What Counts as Remote Work in 2025?
Many employers assume that remote work reduces regulatory oversight. That assumption is incorrect.
A remote employee is legally the same as an on-site employee — the work location does not remove employer responsibilities.
Following the U.S. Department of Labor’s strengthened Independent Contractor Rule, remote workers who are economically dependent or subject to employer control are employees, not contractors.
Labeling someone as “remote” or “flexible” does not justify issuing a Form 1099. Misclassification often results in back wages, overtime liability, and payroll tax assessments.
2️⃣ Wage & Hour Rules for Remote Employees
Remote workers remain fully covered by the Fair Labor Standards Act (FLSA) and applicable state labor laws.
- Minimum wage: based on the employee’s work location
- Overtime: applies after 40 hours per week (or lower state thresholds)
- Time tracking: required even for remote roles
After-hours emails, Slack messages, and required availability can be treated as compensable working time.
A California-based remote employee working for a New York company must be paid under California minimum wage and overtime laws, not New York’s.
3️⃣ Multi-State Payroll & Tax Exposure
The most overlooked risk of remote work is state-level compliance.
- State income tax withholding
- State unemployment insurance (SUI)
- Workers’ compensation coverage
Employers may be required to register as an employer in the employee’s state — even if there is only one worker.
“There’s only one employee” is not a valid defense during a state audit.
4️⃣ Leave & Benefit Laws Still Apply
Remote employees are protected by the most employee-favorable federal, state, or local rule.
- FMLA (Family and Medical Leave Act)
- State and city paid sick leave laws
- Paid family leave programs
Courts increasingly recognize that local leave laws apply regardless of where the employer’s office is located.
5️⃣ Employer Expense Reimbursement Duties
Some states require employers to reimburse employees for necessary business expenses.
- Computers and monitors
- Internet and mobile phone usage
- Required software and tools
Under California law, employers often must reimburse remote employees for reasonable internet expenses used for work.
6️⃣ Common Employer Compliance Mistakes
- Assuming a written agreement overrides labor law
- Applying headquarters wage rules instead of local law
- Ignoring overtime because work is remote
- Believing payroll taxes are the employee’s responsibility
- Q. Does one remote employee really trigger state labor law?
A. Yes. The employee’s work location controls. - Q. Are overseas remote workers subject to U.S. labor law?
A. It depends on contract terms, work location, and local law. - Q. Can switching to a 1099 fix compliance issues?
A. No. Misclassification increases audit risk.
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This article provides general information based on U.S. federal labor and tax law as of 2025.
State and local laws vary, and individual circumstances may change the outcome.
Consult a qualified EA, CPA, or employment law attorney before making compliance decisions.