Properly characterizing an employee who performs services in multiple states is important to ensure compliance with that state’s employment laws. This encompasses everything from giving accurate wage statements, meal breaks, minimum wage, exemption from overtime, etc…
Violating some of these laws may be pricey. For example, if you mistakenly characterize an employee who performs work in multiple states as exempt in State X, but in reality, they are a nonexempt California employee, who ends up suing you for failure to pay wages. This claim can result, in addition to the unpaid wages, in penalties, interest, reasonable attorney’s fees and cost of the suit.
According to California Unemployment Insurance Code Sections 602 and 603, California uses 4 tests to determine which state an employee who performs services in California and other states is considered employed in. Other states have similar provisions that apply similar tests. For other states tests, check with their respective employment department to ensure they employ the same tests.
Four tests are applied in descending order to the employee, not the employer. If one test does not apply, continue on to the next. However, if a test applies do not apply any other tests.
This refers to where the services are performed. If all or most of the employee’s services are performed in California, aside from incidental or temporary services performed out of state, then the employee is considered employed in California.
2. Base of Operations
This refers to a more permanent place where the employee starts work and customarily returns to perform services under the terms of their employment contract.
3. Place of Direction and Control
An employee is employed in California if some services are performed in California and the employer exercises general direction and control over the employee in California.
4. Residence of Employee
If none of the above apply, then the residence of the employee is determinative.