The Legal Challenges of Managing a Remote Team in 2026

Remote work is easy to approve and hard to manage legally. The biggest problem is not whether the employee has a laptop or a quiet place to take calls. The bigger problem is that the employee may be working from a state where the company has never registered, never withheld payroll taxes, never obtained workers’ compensation coverage, and never checked the local wage-and-hour rules.

Legal update note: This article is current as of July 2026 and is for employers. Remote-work laws, tax rules, wage-hour requirements, reimbursement rules, and state registration obligations can change quickly. Employers should have counsel review remote-work arrangements and should coordinate tax and payroll questions with a qualified CPA or payroll advisor.

In 2026, remote-work compliance is multi-state compliance. Remote work is flexible for employees, but it is not flexible for compliance — the law generally follows where the person actually works.

The Real Remote-Work Problem in 2026

Employers face many challenges with remote workers — some obvious, some not. Remote teams can be managed effectively, but employers need to know what to expect and put the right mechanisms in place. They should also adjust expectations around working hours, particularly for exempt employees.

The challenge that trips up the most employers, though, is not productivity. It is that a remote employee may be working from a state the company never planned to operate in — and that single fact can quietly reshape the company’s legal obligations.

Multi-State Remote Work: The Rule Employers Miss

Short answer: Often, the law of the state where the employee physically works matters most. Employers should not assume headquarters law controls a remote employee who works from another state.

Employers often think remote work follows the company. It usually does not.

In many areas, employment compliance follows the employee’s physical work location. If an Arizona or Texas company allows an employee to work remotely from California, the company may inherit California wage-hour rules, reimbursement obligations, leave laws, workers’ compensation requirements, payroll registration issues, and required notices.

This can happen faster than employers expect. Unlike sales-tax economic nexus thresholds, employment obligations often do not wait for a company to cross a dollar-volume threshold. One remote employee in a new state may be enough to require registration, withholding, unemployment insurance setup, workers’ compensation coverage, and a review of that state’s employment laws.

A single out-of-state remote worker can trigger questions about:

• foreign entity registration;
• state income tax withholding;
• state unemployment insurance registration;
• workers’ compensation coverage;
• minimum wage and overtime rules;
• meal and rest break rules;
• paid sick leave or other leave laws;
• required notices and workplace postings;
• expense reimbursement;
• final pay rules;
• anti-discrimination and retaliation laws;
• data privacy and security; and
• payroll and tax reporting.

Because some of these are tax and payroll questions rather than pure employment-law questions, employers should coordinate withholding, income sourcing, and business-registration issues with a qualified CPA or payroll advisor. This post also connects to worker classification: a remote independent contractor raises its own multi-state classification questions.

Recent remote-work litigation also shows that physical work location can matter when courts decide whether a state employment statute reaches a remote employee. That point is state-specific, so employers should not assume headquarters location answers the question.

California Remote Employees: The Expensive Example

Short answer: Yes. One remote employee working from another state can trigger registration, withholding, unemployment insurance, workers’ compensation, wage-hour, leave, reimbursement, and notice obligations depending on the state.

California is the example that gets employers into trouble.

A Texas or Arizona company may be used to a simpler employment-law environment. But if the company lets a nonexempt employee work from California, California rules may come with that employee.

That can mean daily overtime after eight hours, meal and rest break compliance, California paid sick leave, required wage notices, stricter final pay rules, and reimbursement of necessary business expenses under Labor Code § 2802.¹ The same job can cost more depending on where the employee physically works.

Minimum wage also becomes location-specific. Employers should check the highest applicable federal, state, county, or city minimum wage for the place where the employee actually works. Two remote employees doing the same job may be owed different rates if they work from different jurisdictions. If your company posts remote roles that could be filled in California, review our guide to California pay transparency and remote job postings as well.

Some states, including New York and Connecticut, also apply “convenience of the employer” rules that can treat certain remote workdays as taxable in the employer’s state even when the employee is working elsewhere.⁴ Employers with workers connected to those states should coordinate with payroll and tax advisors before assuming remote work solves the tax question.

Remote Work Expense Reimbursement

Expense reimbursement is one of the easiest remote-work issues to underestimate. Employers may think the employee is “choosing” to work from home, but the analysis changes if the employee needs internet, phone use, equipment, software, postage, or other tools to do the job.

In California, Labor Code § 2802 requires reimbursement for necessary business expenses.¹ Under California case law — specifically Cochran v. Schwan’s Home Service, Inc. — an employer that requires employees to use personal cell phones for work calls must reimburse a reasonable percentage of the bill, even if the employee did not incur an extra charge.²

This is a California-specific rule, but California is not the only jurisdiction with employee expense reimbursement requirements. Several states and local jurisdictions have reimbursement rules or wage-deduction limits that can affect remote-work expenses. Employers should verify the rule in the state where the employee works before adopting a national reimbursement policy.

Wage-and-Hour Problems for Remote Teams

The biggest management challenge is knowing employees are working during work hours — fundamentally an issue of proper management. A manager should know what subordinates are working on and how effectively they’re performing. Remote work brings distractions, and employees who let these dominate may not be suited to it. If a remote worker’s load is light, give them work; if there’s genuinely nothing to do, that’s a staffing issue, not the employee’s fault.

Keep in mind that exempt employees are paid for their work, not their time — an efficient exempt employee pulling their weight may be worth keeping even if they aren’t working a full eight hours. The harder case is the non-exempt employee, who is paid for their time. Whether a non-exempt employee works in the office or remotely, the business is responsible for complying with all wage-and-hour laws, including overtime, time recording, and meal and rest breaks.

Remote work does not eliminate these obligations — it makes them harder to track. A nonexempt employee working remotely from California can trigger California’s daily overtime rules (over eight hours in a workday), even if the employer is based in Texas or Arizona.³

Remote Work Policies and Location Approval

A remote-work policy should not just say employees can work from home. It should say where they are approved to work.

The most common compliance problem is the quiet relocation: an employee moves to another state, keeps working, and no one tells payroll, HR, or legal until months later. A good remote-work policy or addendum should address:

• the employee’s approved work location;
• whether work from another state requires written approval;
• whether international remote work is prohibited or separately reviewed;
• timekeeping expectations;
• meal and rest break compliance for nonexempt employees;
• expense reimbursement rules;
• company equipment;
• data security and confidentiality;
• workers’ compensation reporting;
• return of equipment; and
• the company’s right to revoke or modify remote-work approval.

A remote-work policy works best as part of a broader employee handbook that is reviewed and updated as the team grows.

Data Security, Confidentiality, and Home Networks

Equipment return is important, but it is not the only remote-work security issue.

Remote employees may access company data from home networks, personal devices, shared spaces, coworking locations, or public Wi-Fi. That creates risk for confidential information, customer data, trade secrets, privileged communications, and business records.

Remote-work policies should address device use, passwords, multi-factor authentication, storage of documents, printing, personal devices, public Wi-Fi, and what happens when employment ends. For businesses handling customer data, this connects directly to your privacy and data-protection obligations.

Return of Company Equipment

Provide remote employees with work equipment so the employer isn’t responsible for personal devices or the accidental dissemination of confidential information. But sending equipment to a home makes retrieval harder when employment ends. To make returns easy: terminate with enough time left in the workday for the employee to return equipment (avoiding extra paid time), provide a mechanism to claim mileage for drop-off (since their home may be their workplace), and arrange a shipping service with a pre-paid label where possible. These steps prevent employees from holding equipment indefinitely and avoid burdening them with packaging or shipping costs.

Professional Standards Without Overreaching

Employers can set reasonable expectations for client-facing meetings, confidentiality, professionalism, and availability. But remote-work standards should be tied to legitimate business needs and applied consistently.

A policy that focuses on camera use, meeting professionalism, confidentiality, and avoiding disruptive or inappropriate content is stronger than a policy that tries to control every detail of an employee’s home environment. How you monitor or investigate remote employees online raises separate legal limits — see our guide to social media monitoring policies.

Employers should also consider disability, religion, pregnancy, caregiving, and other accommodation issues before enforcing remote-work appearance or availability rules rigidly.

Employer Checklist Before Approving Remote Work

Before approving a remote arrangement — or an employee’s relocation — employers should work through:

• Where will the employee physically perform work?
• Is the company registered to do business and run payroll in that state?
• Has withholding, unemployment insurance, and workers’ compensation been set up for that state?
• What is the applicable minimum wage and overtime rule where the employee works?
• Do that state’s meal/rest, leave, reimbursement, and notice rules apply?
• Is there a written remote-work policy or addendum approving the location?
• Are data-security and confidentiality expectations documented?
• Is there a plan for equipment return at separation?
• Have tax and payroll advisors reviewed nexus and withholding questions?
• Has counsel reviewed the arrangement before it goes live?

Given the complexities in this area — and the number of employees now working remotely — employers implementing telecommuting programs should consult counsel to help address compliance with their legal requirements, and coordinate tax and payroll questions with a qualified CPA or payroll advisor.

Frequently Asked Questions

This article is current as of July 2026 and is provided for general informational purposes only. It is not legal advice, tax advice, or payroll advice, and it does not create an attorney-client relationship. Remote-work obligations can vary by state, city, county, employee classification, industry, work location, and the facts of the arrangement. Laws governing wage-and-hour, expense reimbursement, tax withholding, unemployment insurance, workers’ compensation, leave, privacy, data security, notices, and foreign entity registration can change quickly. Employers should consult qualified legal counsel before approving or denying remote-work arrangements, and should coordinate tax withholding, income sourcing, and nexus questions with a qualified CPA, payroll provider, or tax advisor.