Question

We have employees who work from home in other New England states. Do we follow Massachusetts laws, or do we have to follow the laws of the states where they live? We’re especially confused about when to give their final paycheck if they are fired.

Answer

Since the pandemic, more people are working from home. That means some employees now live and work in different states than their company’s main office. When this happens, it can get tricky because each state has its work laws, and the rules can differ depending on where the employee lives and works.

Many work rules—such as income taxes, leave and paid leave, workers’ compensation, final pay, and unemployment benefits—are decided by the state where the employee works.

However, Massachusetts law might still apply if your business is in Massachusetts and the employee often works with your Massachusetts team or travels to Massachusetts for work.

What does Massachusetts say about final pay?

If you fire an employee (involuntary termination), Massachusetts law says you must:

• Give the final paycheck on the same day the person is fired.
• Include all wages, commissions due (once the amount is clear and due), and any accrued, unused vacation time.
• If you don’t follow the rule, you could owe the employee three times the amount you should have paid.

The requirement will extend to out-of-state remote employees if Massachusetts has the “most significant relationship” to their employment. Since the statute does not define the “most significant relationship,” it is up to the court to determine whether the law applies based on the evidence submitted. Out-of-state remote workers often use the Wage Act because they can get three times the amount they are owed if they win their case.

Real Example: A recent Superior Court case involved a Rhode Island remote employee of a Massachusetts employer

The employee disputed payment of a commission in the year before her termination in 2023, arguing that two managers told her that she would receive commissions on sales for one year after securing a customer contract in October of 2022.  The employer ceased paying the commission in March 2023, saying that the year began in March 2022 when the employee had secured a different contract with the same customer.

The employee was placed on a two-month performance improvement plan (PIP) in May 2023—just three months after receiving an “exceeds expectations” rating on her annual performance review. During the PIP period, she continued to challenge the March end date of her sales commission and expressed to coworkers that she was looking for a new job, and, according to her employer, her performance declined. At the end of the PIP, she was terminated for failing to meet its outlined expectations.

The employee brought a claim under the Massachusetts Wage Act for the commission,  payment of final pay, and accrued vacation. She also claimed that she was retaliated against for asserting her rights under the Wage Act.

Even though the employee worked in Rhode Island, the Superior Court in Massachusetts rejected the employer’s motion to dismiss the case.  The employer argued that Massachusetts law does not apply to the employee’s employment because the employee worked in Rhode Island.

The court disagreed, finding that Massachusetts is the state with the most significant relationship to her employment: the employer is headquartered in Massachusetts, the employee’s territory included Massachusetts, and she frequently traveled to Massachusetts during her employment. The Wage Act might also apply to a remote worker in Massachusetts who works for a company based in another state.

Key Point for HR

Massachusetts law, including the Wage Act, can apply to remote employees—even if they work from another state—if there is a strong connection to Massachusetts. That includes where the company is based, where the employee works or travels, and where their clients are located. HR should evaluate these factors carefully and seek legal or tax advice.

Employers should consult with a tax advisor about establishing a presence in states where they have remote employees.

Some laws, like paid family leave or unemployment insurance, usually apply to the state where the employee lives and works—if they’re officially set up as an employee in that state.

To do that, your company may need to:

• Register to do business in the employee’s state,
• Pay taxes and insurance in that state.

If you don’t do that, Massachusetts rules might still apply.

Takeaways for HR Teams

• Even if a worker lives out of state, Massachusetts laws may apply if your company is based here or the worker has strong ties to Massachusetts.
• Final pay laws are different in every state. Massachusetts is one of the strictest.
• Make sure your remote employees are set up correctly in their home states.
• Talk to a tax or legal advisor to avoid mistakes and penalties.

Need help navigating remote work laws?
If you’re an AIM member and have a quick compliance question, the HR Helpline at 800-470-6277 or helpline@aimnet.org

For more in-depth assistance, like updating your handbook to cover out-of-state employees or navigating complex compliance challenges, AIM HR Solutions offers customized consulting and training contact us at hrinfo@aimhrsolutions.com.