Why Does That Work-From-Home Job Say You Have to Live in a Certain State?

Work from home jobs
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Let’s get to the point: Why in the world do work-from-home jobs have state restrictions?

You’re working from home, so why does your location matter?

We’ve heard this question from a lot of you, and honestly, we’ve been a little stumped ourselves. So we wanted to dig into the matter and answer your question.

Why Do Work-From-Home Jobs Have State Restrictions?

Last month, we wrote about this awesome app called Foodler. It was hiring work-from-home customer service reps in 13 states.

I reached out to Lu Nelson, the company’s human resource specialist. Foodler hires its reps as contractors, and Nelson explained that Foodler has state restrictions because of taxes, unemployment fees and possible licensing fees.

“Every state and some city’s (licensing) fees vary,” she says. “It can end up being pricy for a small business that is wanting to have virtual employees in various states.”

I also reached out to John Stewart, Nexrep’s president, who’s in charge of hiring Drybar virtual receptionists in 46 states.

Like Foodler’s Nelson, he hires contractors — essentially freelancers — and says each state’s laws vary.

“There’s no cut-and-dry answer,” he says. “But some states have friendlier laws involving contractors.”

During our conversation, Stewart noted laws pertaining to taxes, unemployment and worker’s compensation. I asked if it might be easier to break through state lines and just hire employees versus contractors.

Turns out, it’s not: As an “employee,” the flexibility so many work-from-home jobs offer diminishes, which tends to be the main perk of working from home.

4 Reasons Work-From-Home Jobs Often Have State Restrictions

In an attempt to lock down some answers, I reached out to Brie Reynolds, senior career specialist at FlexJobs — a site featuring millions of flexible work opportunities. I knew she’d offer some insight.

“It’s a little bit weird when you’re looking for a job you can do from home, but you’re being told, ‘Nope, you can’t do that from home if you live here,’” Reynolds says, echoing many of our readers’ frustrations.

She explains only about 5% of the telecommuting jobs featured on FlexJobs have zero state restrictions.

Unfortunately, this isn’t uncommon. She outlines the main reasons for these restrictions.

1. Employment Tax Laws

Reynolds says this is one of the biggest reasons for these state restrictions. And like everything else, employment tax laws vary by state — even city.

“When a company starts to hire someone in a state that’s different than the one they operate in, it has to be able to set itself up to collect employment taxes, so that might change on state, local and federal levels,” she says.

2. Employment Classification

Consider the differences between an employee and a freelancer or contract worker.

Think of a painter hired to paint your house. That person is likely considered a “freelancer” or contract worker.

This is what Stewart was referring to when he was talking about hiring for Drybar in 46 states. He hires workers on a contract basis. They can pick and choose their own hours, whereas an employee cannot.

“With freelancers, there are way fewer restrictions,” Reynolds says. “They can basically be hired from anywhere. That includes different states and also internationally. So for companies able to hire under a freelance role, it becomes a lot easier to hire across state lines.”

Since freelancers are basically self-employed, they handle their own taxes and Social Security — all of those payments come out of their paychecks.

Freelancers also aren’t protected by as many laws and regulations (think: worker’s compensation, overtime compensation), which lowers the costs of hiring them.

3. Work Space Regulations

This might sound weird, but it’s a big one.

Work space regulations don’t necessarily mean the office needs a kitchen or at least two couches. It means employees might have to work a certain amount of hours before taking a break. And is the break paid or unpaid?

Reynolds says California is a great example of a state with more stringent laws regarding the work space.

“Each state does that independently,” Reynolds says. “So it’s a huge maze to wade through for employers who want to bring people on in different states.”

4. Other Job-Dependent Regulations

Getting out of the legal talk, there are more obvious reasons work-from-home jobs might have restrictions.

These include in-office meetings, location-based clients (city or timezone) and on-site training requirements. Because who wants to pay for your travel? Not the company. You probably don’t want to, either.

Reynolds has also noticed companies requiring you to be near a large airport if it’s a travel-intensive job.

Which Companies Aren’t as Likely to Face These Restrictions

There are a few types of companies to look out for if you’re wanting to avoid state restrictions — although these rules aren’t universal.

These companies, of course, lie at two ends of the spectrum: new, startup companies and large corporations.

Reynolds makes a salient point: Many companies starting out are willing to hire employees in any state.

“A lot of smaller and startup companies will say, ‘OK, we’ll deal with whatever employment issues we have to; we just want to get the best people when we’re starting,’” Reynolds explains.

Once these companies have hired a solid talent base from 5 to 10 states, each might issue the state restrictions to spare HR from copious amounts of legal research.

On the other hand, there are the large corporations with huge internal HR and legal teams that can handle national and international work-from-home regulations.

“Once you get to a certain size, it becomes easier because you have more resources available,” Reynolds explains.

What to Do if the Job You Want Has State Restrictions

Don’t get too discouraged — Reynolds encourages you to still apply to your dream job.

“One thing we have heard from a couple employers that have this issue — that are not hiring at the moment for certain states… it doesn’t mean they won’t in the future,” Reynolds says.

So her biggest piece of advice via hiring employers?

Most employers say to put your information into their system anyway, and then at least they have it if they do start hiring in that particular state,” she explains. “You’ll already be in the state.”

Also see if you can sign up for job email notifications. Depending on the company, it will update you if the state restrictions have been lifted.

Your Turn: Do you live in a state that doesn’t have a lot of work-from-home jobs?

Carson Kohler (@CarsonKohler) is a junior writer at The Penny Hoarder. After recently completing graduate school, she focuses on saving money — and surviving the move back in with her parents.