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Why Multistate Employers Rely on PEOs

It can often feel as though you're supposed to be an expert in tax and state law as a small business owner. Conducting business in different states is a common next step for businesses looking to expand their market. If your firm intends to conduct business in states other than the one in which it was incorporated (or formed as an LLC), you may be required to register your business in those states and adhere to their local legislation.

Unfortunately, both HR and accounting become significantly more complicated as a result of this. Having staff in various states is beneficial to the employees’ lifestyles and can help recruit top talent, but it adds to the workload in areas such as payroll, HR, and medical benefits.

Working with a Professional Employer Organization (PEO) simplifies the process and helps business owners navigate different state laws and regulations.

What is a PEO?

A Professional Employer Organization (PEO) is an organization that enters into a co-employment relationship, which leases personnel to an employer, allowing the PEO to share and manage many of the employer's employee-related responsibilities and liabilities. Employers can now outsource HR tasks such as employee benefits, compensation and payroll administration, workers' compensation, and employment taxes to a third party.

For a more in depth explanation of how a PEO operates, click here.

How PEOs help solve employers problems

PEOs can help you with your multistate employer related issues in a few ways:

1. There’s no need to create multiple accounts in different states.

2. All of your reporting responsibilities will be handled by the PEO

3. Accounting becomes streamlined because the PEO handles payments

4. Many PEOs provide nationwide medical plans, ensuring that employees are covered uniformly.

5. There's no need to pay several upfront deposits for workers' compensation because the PEO will handle it for you, allowing you to pay as you go each month.

6. The PEO can supply specialists to answer questions about what each state requires.

Challenges for Multistate Employers

When you hire an out of state employee or a current employee decides to move to another state, your business becomes subject to the local laws, policies and tax obligation in that state.

Operating across state lines can add a number of HR complexities.


In most cases, your employee pays income tax in the state where they live, not in the state where you’re located. This can be challenging to navigate if you have a small HR department or aren’t familiar with different state’s tax codes. For example, states like California have much more complex labor laws for overtime pay then many other states. Not knowing or following the state’s labor laws can result in fines and damaged brand reputation. Some states like, Arkansas, Connecticut, Delaware, Nebraska, New York, Pennsylvania, and Massachusetts have a Convenience of Employer rule. If you are based or registered in those locations, your employees will be subject to income tax in those states and the state where they live, potentially resulting in double taxation.

The only simple solution is to register in a different state or partner with a PEO. PEOs are experts in different state tax codes and labor laws. PEOs are also responsible for running your payroll and remitting taxes. Failure to remit the correct tax amount can result in fines. One of the benefits of a PEO, is that if the PEO makes a mistake on the tax side, they take on the fine, meaning the PEO has a financial incentive to accurately process your payroll and taxes.

Workers Compensation

Making sure your employees have workers comp coverage across multiple states can be very costly. Different states have different rates and calculate the work comp cost differently. For example, North Dakota, Ohio, Washington, and Wyoming only allow workers’ comp policies purchased through a state fund. You will need coverage for each state you have an employee in. This forces you to pay multiple upfront costs and to comply with different reporting requirements.

By using a PEO, not only do you not have to worry about the different state requirements, but you’ll drastically cut your workers comp costs. PEOs pool their clients to purchase large group plans at scale. Because a PEO can leverage thousands of employees, they can get coverage at a much cheaper cost per employee than a small business would alone.

PEOs also can help lower any future workers comp costs by lowering your experience modifier and limiting claims. Since your employees fall under the PEOs policy, any claims will affect the mod of the PEO not the client company. This is very valuable to companies who have been hit with claims. PEOs have a financial incentive to keep your workplace safe.

Employee Benefits

Employee benefits such as healthcare plans are usually state specific. When employees are working in neighboring states, insurance carriers generally have some sort of provision for it. However, for example, if you have employees working in distant states like New Jersey and North Carolina, you will need separate plans for each. These plans vary in price and include a variety of options, posing a considerable management problem.

If a company chooses to partner with a PEO, the PEO is responsible for administering benefits and health care plans on behalf of the company. The PEO also has access to a national network of carriers so your employees can get benefits regardless of the state they live in.


When you have employees in numerous states, you're subject to a variety of state-specific regulations. In California, for example, an employer is required to provide terminated employees with a final physical paycheck on the date of termination. Employees must request that their final paycheck be mailed, or they have to pick it up. Meanwhile, if you are recruiting workers in Colorado, you must provide wage and benefit details, which you may not feel comfortable providing. Each state has a list of nuanced labor laws that can result in fines if not handled properly.

That’s why relying on a PEO is so beneficial. They know the ins and outs of labor laws across different states. It’s much easier to maintain compliance with the expertise of a PEO in your back corner.

The Cornerstone Advantage

Multi-state employers encounter a variety of difficulties. They must deal with a constantly changing employment rules, taxation in different states, and ensuring that all employees are covered by health insurance and workers' compensation. When you outsource to a PEO, you won't have to worry about any of it, allowing you to relax and focus on growing your business.

Like other PEOs, Cornerstone will help you save significantly on employee benefits, automate your payroll, lower your experience modifier, and help with certain employee related compliance. However, unlike other PEOs, our focus is on excellent customer service.

Other PEOs will just add you to their system and send you an invoice. At Cornerstone we assign a professional customer service rep to work with your account. This not only adds more of a human touch, but it also allows us to create custom solutions unique to your business. Got questions? We have a rep to help you answer them. A problem occurred? You have a rep who understands your business and can create an effective solution.

Contact us here for a FREE consultation.


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