You would think there were many benefits to hiring talent across the country, including greater diversity and an expanded talent pool that lets a company find the best people no matter where they live. But for many businesses, hiring across state lines has become a major issue that can affect whom they can hire and how quickly they can grow.
FoxHire, an employer of record (EOR) platform, recently used an industry survey to create the Multi-State Hiring Compliance Burden Index. This project surveyed professionals in HR, payroll, staffing, and business to develop a clearer perspective on why, even though nationwide hiring is now common, the necessary support system isn’t there to help it. The results were eye-opening.
How Remote Work Changed Multi-State Hiring Compliance
The COVID-19 Pandemic changed the way many companies operate. According to the US Bureau of Labor Statistics, “…remote work increased dramatically across all major industries between 2019 and 2021.”
The challenge is in remote expansion, not just scouting great talent elsewhere. It’s about being ready to employ the perfect candidate the moment you find them legally. But that’s when things can become problematic.
The Hidden Costs of Multi-State Hiring Compliance
When a company hires someone in a new state, the process automatically becomes more complex. It starts with tax registration, setting up state unemployment accounts, digging into local wage laws, and updating payroll. And it isn’t a simple, one-and-done chore, either. It’s an ongoing administrative burden that increases with every new employee from another state and every new law that requires acknowledgment.
Often, the compliance cost of hiring across state lines is just too high for HR teams. This can force companies to reluctantly limit their recruiting reach to in-state talent pools, which can greatly impact their growth or, even worse, lead them to turn away qualified candidates because of where they live. It isn’t a lack of ambition; it’s a lack of the right internal systems.
How Multi-State Hiring Compliance Delays Hiring Decisions
Several data points illustrated that almost half (48%) of respondents have paused hiring or expansion because they weren’t sure about a state’s employment rules, a full half (50%) of companies have refused to hire a qualified candidate specifically because of compliance concerns tied to that person’s state, and 43.7% simply decided not to hire in a particular state because the compliance risk felt too great, but opted not to inform the candidate.
In the last year, about four out of five companies (79.9%) experienced at least one negative hiring outcome due to state-by-state compliance rules. And when companies do expand, it’s often slow. About 36% needed at least a month to feel confident they were fully compliant after hiring someone from a new state. Finally, 25% have been fined or penalized for multi-state compliance in the last two years.
Why Multi-State Hiring Compliance Means Operational Readiness
Imagine being a company ready to hire a perfect candidate, only to learn your own company doesn’t have the proper compliance to bring that person on. Or worse, imagine launching a new remote-first venture, only to learn you don’t have the right paperwork or hiring team to make your dream a reality.
Companies needed a clear path to hiring the best candidates, not delayed onboarding due to registration gaps. For a company to successfully expand and succeed, it must be compliance-ready for new talent and the road ahead.
FAQs
What is the biggest mistake that companies make when hiring from a different state?
The most common error is underestimating the time and effort required for initial registration and setup. Some HR teams rely on payroll software, which may not fully address tax registration and entity setup requirements.
Which state is considered the most difficult for compliance?
According to survey data, California is considered the most difficult state to stay compliant with, largely due to its complex wage-and-hour laws.
How do compliance issues affect the hiring process?
Compliance can act as a bottleneck, slowing growth and causing companies to decline candidates based on their geographical location, sometimes without telling them.
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