You hire one person in another state, then the letters show up. You didn’t do anything sketchy. You hired talent where you could find it and now you have multi-state employees. Remote engineer in Nevada. Out-of-state superintendent. Leasing agent near a new property in Hawaii.
Then the first letter lands: “You failed to file…”
If you’re a California business, pay extra attention. California is aggressive on compliance, and other states are happy to copy the playbook.
Let’s keep this simple. Here’s the checklist that prevents surprise letters for construction, SaaS, tech, and real estate businesses.
Here’s the core rule most states operate by: if someone is physically working in a state, that state considers your business active there. There’s no gray area magic that makes it disappear.
And when a state says you’re “active,” what they really mean is this: “If wages are being paid here, you need payroll accounts here. And you need to file.”
Once those accounts are open, you’re officially on the state’s radar. From that point forward, the system expects regular payroll returns on a set schedule: monthly, quarterly, annually, or all three. If you miss a return, expect to get a notice. When you miss multiple returns, you get penalties.
This doesn’t have to be complicated, but it does require discernment (and a healthy dose of research). When it comes to state filings, there are a few situations that almost always trigger obligations. Think of these as the usual suspects:
Remote work from the employee’s home in that state
Field work at a job site in that state (construction crews, installers, technicians)
On-site work at an out-of-state property (real estate management, maintenance)
Travel that turns into real work time (not a one-hour meeting, but actual work performed there)
It’s not about overthinking every scenario. It’s about recognizing when work is truly happening in a state, and understanding that states tend to notice when money and labor show up inside their borders.
When you’re unsure whether you have multi-state employees or not, err on the side of caution. Default to: “If we’re paying wages for work performed there, we probably have filings there.” It’s usually cheaper (and less stressful) than fixing it later.
A lot of owners make a very reasonable assumption: “Payroll ran. The employee got paid. So we’re compliant.”
Unfortunately… not always.
Payroll software is excellent at what it’s designed to do: cut checks and move money. It’s fast, reliable, and efficient. What it’s not great at? Guessing which state accounts you did (or didn’t) open behind the scenes.
If the right payroll and withholding accounts aren’t set up in that state, the software can still pay the employee just fine. Everything looks normal on your end. Then fast-forward a quarter or two. That state’s system runs a match, sees wages reported (or an employee attached to your company), and flags you as missing filings.
And that’s usually when the next letter shows up: confused, accusatory, and already counting penalties.
If a person is physically working in a state, assume you have obligations in that state until proven otherwise.
And if you’re California-based, raise the bar even higher. California holds businesses to stricter standards when it comes to worker classification, payroll accuracy, and documentation. They look closely, they ask questions, and they don’t give much benefit of the doubt.
That’s just how the game is played here. Once you understand the rules for multi-state employees, it’s much easier to stay out of trouble, and keep those surprise letters out of your mailbox.
Most of the time, these letters aren’t random, and they’re not personal. They’re the predictable output of automated state systems doing exactly what they’re programmed to do.
Here are the usual suspects that hit B2B operators:
Quarterly withholding return missing (sometimes they want a “zero” filing)
Quarterly unemployment wage report missing or mismatched
Account setup mismatch (state has you as “active,” but payroll filings are going nowhere)
Workers’ comp audit questions (especially when work locations changed)
Penalty notices triggered automatically by missing returns
Here’s the blunt truth: state systems are automated.
If you don’t feed them the forms they expect, they spit out penalties like a vending machine. Just inputs and outputs. Understanding that makes these letters a lot less mysterious, and these surprise notices a lot easier to prevent.
This one happens all the time. You hire an Arizona-based project manager. Payroll runs smoothly. The employee gets paid. In other words, everything looks fine.
Then about six months later, Arizona shows up with a letter: “You missed a quarterly filing.”
What usually happened? One of two things (sometimes both).
The Arizona withholding account, the unemployment account, or both were never fully set up—or they weren’t properly connected inside payroll. So while wages were paid, the state never received the wage report it was expecting.
This is a classic issue with mobile crews. Your team heads to Nevada for a five-week job. They do the work, get paid, and move on to the next site. Easy, right?
Not quite. Mobile crews create payroll obligations where the work actually happens. If your filings and workers’ comp coverage don’t line up with the job-site state, Nevada’s system eventually notices.
It doesn’t happen immediately. It shows up later and usually in the form of a notice asking why wages were paid in Nevada but nothing was filed there. By the time that letter arrives, the job is long finished… but the compliance trail isn’t.
This is especially common with fast-growing startups. Headcount scales quickly. Admin work… not so much. You bring on a remote engineer in Texas. Payroll runs. Everyone’s focused on product, customers, and growth—not state registrations.
Miss one state account setup, and everything still looks fine for a while. Then, months later, Texas sends a friendly-but-firm message: “You need to register and file.”
Nothing dramatic happened. You just outpaced your back office, and the state’s system eventually caught up to the fact that work was happening there—whether you were ready for it or not.
Multi-state employees in construction projects. Crews move fast, projects pop up in new states, and payroll has to follow the work. When people are onsite, compliance travels with them.
There are three buckets you have to keep straight, and this is where most owners get tripped up. But from the state’s point of view, they’re very different things. Mixing them up is how small oversights turn into notices, penalties, and cleanup work later.
Let’s break them down:
Entity registration (foreign qualification / “doing business”)
Payroll registrations (withholding + unemployment)
Insurance and labor compliance (workers’ comp, posters, paid leave basics)
Let’s walk through it.
When you’re thinking about compliance, start with one simple question: Where is the work actually happening?
Don’ think it’s where your company is formed. Not even where your bank account sits. You consider where people are physically doing the work. That’s the only thing most states care about.
Depending on the industry, here’s what you should list:
Construction: list every job site by state
SaaS / tech: list each employee’s home-office state
Real estate: list both property locations and staff locations
Don’t forget to include these details:
Employee name + role
Work state (where the work is performed)
Home state (if different)
Start date
Expected travel states (if any)
Once you map that out, the rest stops feeling abstract, and starts feeling manageable.
Multi-state hiring quietly raises misclassification risk—especially when owners are tempted to “keep it simple” by using 1099s.
On paper, it feels easier. Fewer accounts, less setup, less friction. But if you’re controlling the schedule, tools, training, and day-to-day work, the relationship starts to look a lot like employment—no matter what you call it.
And that’s the key point: States don’t care what you labeled the worker. They care what the relationship actually is.
If you’re California-based, you already know the cultural reality here. The bar for treating someone as a contractor is higher than most owners expect—and other states are increasingly following the same playbook.
“Keeping it simple” upfront is often how things get complicated later.
Some states require you to register your company to do business there if you have employees working in that state.
This step often gets overlooked because it sounds similar to a lot of other things—but it’s separate from all of them.
It’s not the same as:
A local business license
Your payroll tax accounts
Those are all different requirements, handled by different agencies, on different timelines, with different penalties if you miss them. The mistake most owners make is lumping all of this into one mental bucket called “compliance.”
Keep them distinct, and the process stays manageable. Blend them together, and that’s when things slip through the cracks.
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In most states, once you have employees working there, you need two core accounts.
The basics are:
State income tax withholding
State unemployment insurance (SUI)
These are the foundation. Everything else builds on top of this. If you stop here and actually set these up correctly and connect them to payroll, then you eliminate most of the surprise letters businesses get later. Miss these two, and the state’s system starts asking questions.
This is where the wheels usually fall off.
A “clean setup” isn’t just opening accounts. It means your payroll system actually knows what to do with them. That requires the right work state, the right account numbers, and active electronic filing connections.
So slow down and confirm the basics:
The employee’s home address is correct (not your HQ by default)
The work location/state is correct—especially for field teams
The withholding and unemployment account numbers are entered correctly
E-file and e-pay are fully active (not stuck in “pending” limbo)
Don’t assume it’s handled. Confirm it.
This step hits construction and real estate the hardest.
Workers’ comp policies are often written with a home state in mind. That might cover California just fine—but quietly exclude other states unless you specifically add them. That’s where problems start.
So be direct with your broker:
Tell them where people physically work, not just where you’re based
Confirm the policy lists every correct state
Confirm the class codes are accurate (construction class codes, in particular, get heavily scrutinized)
This isn’t paperwork trivia. When locations or class codes don’t match reality, audits get messy fast, and the fixes are rarely cheap.
States are not consistent. That’s the part that trips people up. The most dangerous assumption sounds totally reasonable: “No payroll this quarter, so no filing.”
In many states, that’s wrong. Some states still expect a zero return. Others flag your account the moment a filing is missing—whether wages were paid or not.
So you have to actively track:
Withholding return due dates
Unemployment wage report due dates
Any local filings, if they apply
And if you’re no longer active in a state, don’t just stop filing and hope it sorts itself out. Close the account.
An open account with no filings looks exactly like noncompliance to an automated system, and that’s how penalties quietly start piling up.
Payroll problems usually don’t start with taxes. They start with bad data. A wrong start date. The wrong work location or state. A job role or classification that doesn’t match reality.
Those little details feed directly into your filings. Get them wrong, and everything downstream is wrong too.
So make sure the basics are solid:
Correct start date
Correct work location/state
Correct job role and classification
And remember this rule of thumb: Nothing is more permanent than a temporary payroll workaround.
Fix it at the source, and the rest of the system has a chance to behave.
This is the hidden cause of endless notices. When an employee leaves a state, many businesses just… stop filing. The state doesn’t see it that way. An open account means the system expects returns forever.
So finish it properly:
File a final withholding return (and mark it final)
File a final unemployment report (and mark it final)
Close the accounts and save the confirmation
That last step matters. A lot.
An account that’s truly closed goes quiet. An account that’s merely ignored keeps generating letter
Compliance is repetitive—and repetitive tasks fail when nobody owns them.
Multi-state payroll isn’t hard because it’s complex. It’s hard because it’s easy to assume someone else is handling it.
So make it boring and intentional:
Pick one owner for multi-state payroll compliance
Set a recurring quarterly review (10 minutes is usually enough)
Keep a simple state tracker with account numbers and filing cadence
When there’s clear ownership, things don’t get missed. When there isn’t, the system quietly drifts—until a letter shows up to remind you who was supposed to be paying attention.
This doesn’t need to be fancy. In fact, boring is better.
A simple spreadsheet is more than enough—as long as it answers the right questions. Your state tracker should include:
State
Employees working there
Withholding and unemployment account info
Filing frequency and due dates
Workers’ comp coverage confirmed (yes/no)
Last filing date plus proof
That’s it. Just a single place where nothing slips through the cracks.
A few issues come up again and again, depending on the industry. These are the ones that tend to catch people off guard.
The job-site state matters, not your home office
Workers’ comp and class codes must match where the work happens
Short projects still count, even if the crew is only there briefly
Remote hires multiply states faster than expected
Employees relocate, sometimes without much notice
Payroll compliance still has to stay clean, even when the team is distributed
Payroll follows property geography
New property states should be treated like new payroll states
Maintenance vs. admin roles matter and can affect audit outcomes
None of these are exotic edge cases. They’re everyday situations, and they’re exactly where most surprise notices come from.
Multi-state employees in in SaaS & tech companies. New hires, new states, new payroll obligations are all showing up at once in growing SaaS & tech companies.
None of these feel like big mistakes in the moment. But they compound quietly, until a state letter shows up to connect the dots for you.
“We’ll fix it later” (later turns into six months fast)
Assuming payroll software handles everything
Ignoring zero-return notices because “nothing happened”
Using the wrong work state in payroll
Mixing up entity registration and payroll requirements
Forgetting to close accounts when activity stops
This doesn’t require a big system or more software. It requires discipline.
The simplest setup looks like this:
One owner for multi-state payroll compliance
One payroll system (no shadow processes)
A quarterly review that takes about 10 minutes
That’s it. It’s not exciting, but it works.
This kind of boring consistency is exactly what keeps you out of penalty land, and lets you focus on running the business instead of responding to letters.
These letters feel dramatic, but most of them are fixable if you approach them methodically.
Start with the basics:
Confirm the account number and login the letter is referencing
Identify the exact quarter or month they say is missing
File the missing return (even if it’s a zero)
Pay what’s actually due—not what the penalty math suggests
Request a penalty waiver, if it applies
Close the account, if you’re no longer active there
And zoom out for a moment.
If letters are coming from multiple states, that’s not a one-off mistake. That’s a system problem. Fix the system, and the letters stop.
Do I need to register in a state for just one employee?
Often, yes—for payroll purposes. Business/entity registration depends on the state, but payroll obligations usually kick in immediately.
Do we have to file if wages were zero?
Often, yes. Many states still expect a zero return. If you’re truly inactive, the right move is to close the account, not skip filings.
Can payroll software handle this?
It helps—but it’s not autopilot. Software can file returns, but only if the right accounts, states, and data are set up correctly.
What if the employee moved without telling us?
Update payroll as soon as you find out, then catch up any missing filings. The faster you fix it, the cleaner the outcome.
Construction crews travel. What’s the biggest risk?
Filings and workers’ comp coverage not matching the job-site states. That mismatch triggers audits and notices.
Fastest way to stay sane?
Standardized onboarding, a quarterly review, and a simple state tracker. Boring systems beat constant cleanup every time.
Multi-state employees aren’t scary—the stress comes from winging it. When you do the setup once, put the deadlines on a calendar, and consistently file the boring stuff on time, the whole thing becomes surprisingly manageable. No scrambling, no mystery letters, no late-night “did we miss something?” moments.
If this feels messy—or you’re already getting letters—you don’t have to untangle it alone.
If you’re struggling with multi-state payroll or just want to sanity-check your setup, book a call with me and we’ll walk through what’s actually happening, what needs to be fixed, and what you can safely ignore. One conversation can save you months of cleanup and penalties.
Want my one-page New State Employee Checklist? Comment “STATE” and I’ll send it your way.
Samy Basta brings you more than 20 years experience in tax, financial, and business consulting to his role as founder of Basta & Company. His focus is primarily strategic business planning, empowering clients to set priorities, focus energy and resources, and strengthen operations. In addition, Samy and his firm provide strategic counsel, and technical insight, on a wide range of needs, including tax saving strategies, tax return compliance, as well as choice of entity.
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San Francisco, CA 94111