Starting a remote business has many advantages, but it can also be complicated—setting it up carefully from the beginning will help you realize the most benefits as you grow.
Each location your company operates in might have different rules for employment and tax compliance. These rules change as your company grows and as legislation evolves. It’s important to keep track of these rules to avoid accidental violations and ensure your business is best positioned for long-term growth.
This is the ultimate guide for founders building a remote-first startup who want to avoid the painful parts of working across multiple geographies.
I’ll share how to set up your business plan, which systems to put in place, and how to avoid common pitfalls. My goal is to save you hours of distractions, confusion, and fines with tactics you can put to use from Day 1.
I have made most of the mistakes you’re about to read about. I have also spent nearly a decade building products that cut through the red tape that surrounds starting and running a business—namely Stripe Atlas and my startup, Mosey, which helps users with state-by-state compliance.
Let’s start from the beginning.
There are a few things you can do before incorporating to make running a fully remote company as simple as possible.
- Choose a unique name for the business.
- Set up a virtual mail and phone system.
- Be consistent with government agencies.
Naming the company
Naming is one of the first decisions founders make and one of the hardest. For remote companies, operating in many locations means they often need to register locally. This adds an extra layer to the work—making sure your name is unique and available in each US state in which the company operates.
If the name of the company is already in use in another jurisdiction, your company will need to either change names or register a DBA (doing business as). Registering a DBA can be time-consuming and is an added complication.
It’s far easier to have a unique name that is not taken by another business in any state. That doesn’t mean your product and website need to be unique, but the legal entity name should be.
Here’s an example: When I started Mosey, it was originally incorporated as Mosey, Inc. I ended up changing it to Mosey Works, Inc., because there was a name collision in California, and I didn’t want to waste time filing DBAs everywhere we operated. This spares me a few days of work per year and thousands of dollars in additional legal bills, not to mention the tediousness of keeping track of the right names to use and remembering to renew.
Addresses and fully remote businesses
Nearly every record of a business with the government and local government agencies requires addresses—a physical address, mailing address, and addresses for the owners. This presents a problem for fully remote businesses because they don’t have a permanent address. Put another way, governments are unable to represent “a business that lives on the internet.”
This can cause an endless stream of painful interactions—unless you plan ahead.
How do you handle addresses as a fully remote business?
Set up a virtual address, use it everywhere, and try not to change it. This starts with incorporation and the addresses the IRS and the Secretary of State of Delaware (should you choose to incorporate there) have on file.
Every government agency (and many nongovernmental partners) will ask where your company is located. What should a fully remote company choose as its physical address?
While you could list the home address of one of the founders, the downside is that the company is now tied to a founder’s home. Things get complicated if they move or if you have multiple distributed founders and need to choose which state to list.
As a general rule for remote businesses, headquarters (HQ) is either 1) wherever the highest concentration of founders is or 2) where the CEO is located.
Once you’ve established where HQ is, you can set up a virtual address. Most virtual address providers, such as Earth Class Mail, let you pick addresses in any US state—so you can pick one that matches your HQ. Mail sent to your virtual address is scanned or sent to a forwarding address that you can easily change (like a founder’s home address).
You can use this virtual address as both the physical address and mailing address when registering with government agencies, including when you first incorporate. The advantage of a virtual address over using a home address is that employees and founders can move without disrupting the company’s ability to receive critical mail, requiring address changes with government agencies, or adding the risk of unfavorable tax situations later on.
Use it everywhere
It’s important to consistently use the same address whenever interacting with government agencies. Use it in every signup form and tell your accountant, your lawyer, or anyone else who does anything for the company and needs to list an address.
This lowers the likelihood that you might miss important mail. It also saves you the trouble of having to change it later, which can be time-consuming as you grow.
Try not to change your address
If you use the virtual address consistently, you can avoid the unpleasant task of changing addresses. Changing addresses is annoying in general, but, for remote businesses, changing addresses is especially onerous and can have important compliance implications.
First off, getting a comprehensive list of places where the old address is in use is difficult. It will take effort just to identify all of the work you need to do.
Second, each state agency will need the new address so it can reach you. However, it’s typical for each state to have as many as four local agencies per state, so the number of updates grows faster than the number of states in which a company operates. For example, a company with employees in 5 states typically interacts with 15–20 local government agencies, each with a different system of record and different processes for updating addresses.
Finally, compliance requirements may also change, depending on the kind of address being changed. For example, if your physical address changes, it might trigger new tax requirements due to establishing “physical nexus.” More about nexus later.
Some places still require a “real” physical address
Virtual addresses solve a big pain point for remote companies, but sometimes a real physical address is required. For example, in California, you’ll need to list a physical California address when registering as an out-of-state business—private mailboxes, including most virtual addresses, are not allowed. You’ll need to use a home address in these situations, but the good news is you won’t have to worry about mail, since that will go through a registered agent.
Businesses used to rely on landline phones to give people a way of contacting them. You would call the phone company and get a phone number assigned. If you were to move outside of your current area code, you would change your number (or buy a fancy 800 number).
Most local government systems will require a business phone number. Very few will actually call you, and they generally prefer to send you physical letters—I can count on one hand the number of times I’ve received a phone call from a state agency.
As with virtual addresses, having a virtual phone number makes it easy to decouple the business’s contact information from your personal contact information. Providers like Grasshopper give you a virtual phone number that lets you route calls from anywhere to anyone, making it easy to stay mobile and not miss a call—even internationally. If your personal phone number changes or someone else should get the call, it’s no big deal if you have a virtual phone number set up.
This setup can save you a lot of headaches down the road. I once needed to verify an important bank transaction while I was traveling internationally, but they could only contact the business phone number they had on file. Thankfully, the number could be routed via the virtual phone number to my cell phone.
After the company has been incorporated, there are a few housekeeping things to do. Since remote companies operate in many states over time, it’s important to start thinking about compliance risk.
- Register locally.
- Set up payroll.
- Stay on top of state-by-state compliance.
Registering locally in the US
Unless the founders are located in the same state where the company was incorporated (Delaware for all Stripe Atlas companies), you will likely need to register locally.
While this is true for any company, it’s a bit more complicated for fully remote companies. They’ll need to consider registering with the Secretary of State in whichever state the company is headquartered. They’ll also need to check if there are city-level registrations needed (like in San Francisco).
Registering as an out-of-state business (foreign qualification)
In the US, every state has rules that govern businesses operating within their borders. The Secretary of State’s office keeps track of them and determines if you are “doing business” in their state. Some states consider having a physical presence, such as having an employee working from home or a physical office space, to be doing business. Others consider employees soliciting orders (sales or even attending trade shows), as doing business.
It is recommended to register with the Secretary of State as an out-of-state business (called “foreign qualification”) in whichever state where the company is headquartered. For example, if the company was incorporated as a Delaware C-corp and the founders establish its headquarters in California, they would register with the Secretary of State in California.
This is a complicated area of legal and tax law. For remote companies, it’s best to consult with lawyers and accountants as you grow.
How to register with the Secretary of State
There are generally three main parts to registering with the Secretary of State: a Certificate of Good Standing, a registered agent, and a Certificate of Authority. Requirements may differ state by state, but this set is most common.
Most states require a recently issued Certificate of Good Standing from your home state (Delaware for Stripe Atlas companies). This is essentially the Secretary of State from your home state saying you’re satisfying requirements in their state, so the Secretary of State in the new state you’re registering in has confidence you will perform likewise in their state. You can reuse the same certificate for multiple states, but most states require it to be issued within the past 30–90 days.
You can get a Certificate of Good Standing by filing a form with the Secretary of State (in Delaware it is requested through their eCorp service). It will be mailed to you, and you can usually pay to expedite the delivery.
Next, you’ll need a registered agent. A registered agent accepts mail on your behalf and forwards it to you. Each state has a list of acceptable registered agents, and there are national providers that can support all states.
You might think, “Why not use my virtual address?” Registered agents have a special status—they are certified by the Secretary of State and must have a physical location open during business hours.
Lastly, there is the paperwork to file for the Certificate of Authority (the exact name of the registration varies by state). You fill out a form and send all of the required paper documentation, along with a check, via the postal service to complete the filing. If all goes well, you’ll receive a confirmation (again via the mail) a few weeks later.
Other things to watch out for:
- Some states have additional steps that you will find once you go through the application process. For example, in Pennsylvania you must publish an announcement in two local newspapers.
- Some states require certified copies of your Articles of Incorporation, which you will need to request from your home state.
Maintaining your standing in the state
Once the business is registered, you’ll need to maintain your registration. When a business falls out of “good standing,” it can get penalized or lose privileges in the state (like bringing forth a lawsuit), and there can be an onerous reinstatement process (including reregistering all over again).
Maintaining good standing varies by state, but typically includes an annual report and a franchise tax or corporate tax return. Atlas has tax-professional partners and guides that can help you with tax returns.
Things to watch out for:
- Due dates for annual reports differ by state—sometimes they are based on the date you registered, and sometimes they are based on a calendar year. It’s important to check the dates and make sure to file on time.
- Some states have other reporting requirements, such as California, which requires a Statement of Information within 90 days of registering.
Registering with cities
In addition to statewide agencies, some cities (such as San Francisco) require businesses with any activity in their city to register their business. There is typically an annual renewal or corporate tax that needs to be paid to maintain the registration.
This is a good reminder that pretty much any state, city, or county can impose its own rules on business activity in its jurisdiction.
Setting up payroll for the founding team
Once you’re ready to put the founding team and your first hires on payroll, operating the business becomes more complicated. This section will focus primarily on US employment and taxes.
- Choose a payroll provider that matches the type of employees you want to hire.
- Register for the right tax and insurance accounts in each location.
- Maintain ongoing compliance across payroll, HR, and tax.
Things to keep in mind:
- In general, the employee’s work location determines which set of compliance rules must be followed.
- If someone’s work location changes, you’ll need to make sure to set up payroll properly in that location. It’s fairly easy in today’s payroll systems for an employee to change their address, so you may want to have a policy in place to make sure you stay ahead of any tax issues.
Choosing a payroll provider
Payroll can be complicated, especially when you are getting it set up for the first time with employees in multiple US states—or multiple countries.
How you pay remote employees can differ based on the type of employment (independent contractors, full-time employees, or other W-2 employees) and whether they are based in another country.
We recommend using Gusto or Rippling to run payroll in multiple states, or a professional employer organization (PEO) such as Justworks or Sequoia One (more about the differences later).
Paying independent contractors
Independent contractors are the simplest case for paying people working in different locations. That’s because contractors are generally responsible for paying self-employment taxes, not the employer.
“Independent contractor” is a legal term for self-employed people doing work that is not controlled by the employer. These engagements are typically scoped to a project, short-lived, and compensated on mutually agreed-upon pay schedules.
A word of caution: Misclassification of employees can carry serious penalties and fines. You can decrease that risk by using consulting-agreement templates from a reputable law firm (templates can be found in the Stripe Atlas dashboard) and following best practices for your remote working arrangement.
Nearly all payroll providers can handle payments for contractors—even internationally—making it a straightforward way to start.
While contracting is convenient, top talent will generally want to be full-time employees with salary, benefits, and equity.
Paying full-time employees
Full-time employees, sometimes referred to as W-2 employees, have additional requirements compared to independent contractors. Depending on the state, you’ll need to withhold taxes, pay employer taxes, and provide mandatory insurance.
Hiring international employees is out of scope for this guide. If you are hiring a small number of international employees, you can avoid setting up subsidiaries in each country by using an employer of record (EOR) like Remote or Deel.
Most payroll providers in the US can support full-time employees located in multiple states. We recommend software solutions, such as Gusto and Rippling. There are also PEOs that can help you outsource some of the employment obligations (with notable exceptions), such as Justworks and Sequoia One.
Payroll vs. PEO
Payroll providers, at their core, are software platforms that calculate and file payroll taxes for you.
Previously, businesses would need to calculate everything by hand and file returns and reports in the mail to the appropriate agency. Today, many payroll providers can automate this for you and bundle health insurance and workers’ compensation insurance.
PEOs follow a different model that can offload some of the paperwork needed to be an employer. For example, in many states, using a PEO will mean you don’t need to register for tax accounts or set up your own insurance policies. PEOs also offer better health insurance plans by pooling all of their clients into a few “master” policies, giving them the ability to negotiate better rates with carriers.
PEOs can offload some of the work of employing people in multiple states, but not all. There are 20–30 “client-reporting” states where you will need to register for your own accounts, depending on the PEO you use. You will still need to stay compliant with relevant laws—in particular, PEOs do not help with corporate compliance and taxes.
In general, PEOs are more expensive than payroll providers (hundreds of dollars per employee compared to low tens of dollars), and fast-growing startups tend to move off of PEOs anyway after 50–100 employees.
Setting up payroll for remote employees
To use a payroll provider to hire and pay full-time employees, you will need to register for the right state tax accounts, set up mandatory insurance, and meet any other state-specific requirements. If you use a PEO, you’ll need to check with them each time as the rules for which parts of payroll setup a PEO covers will vary by state.
Every state has a different set of accounts, but generally speaking, you’ll need to register for withholding tax (state income tax, or SIT) and state unemployment insurance (SUI). Some states, like Washington, will also have paid family and medical leave (PFML) and state-run workers’ compensation insurance.
Each registration follows a different process and is typically administered by different state agencies. For example, the Department of Revenue in a state might issue the withholding tax account, but the Department of Labor might issue the unemployment insurance account. Some states try to make it easier by having one process for multiple accounts (e.g., Colorado and New York).
A misconception about using a PEO is that you can avoid having to register. Unfortunately 20–30 states are “client-reporting,” meaning that you will need to open certain tax accounts yourself. Again, the list of which states are client-reporting varies by PEO—and some states, such as Washington, Ohio, Massachusetts, and more, also have their own workers’ compensation insurance policy that cannot be provided through a PEO.
A common problem for remote companies registering in many states is that it can be very easy to sign up for a tax obligation they may not have. For example, in some registration flows you can accidentally register for corporate income tax and sales tax accounts. That might not sound bad if you have no revenue in the state, but figuring out how to file zero-dollar tax returns in multiple states is a big distraction that can be avoided.
When to register for tax and unemployment insurance accounts
To avoid penalties due to late payments or reports, it’s best to register for the necessary state tax accounts as soon as you can.
There are a few caveats about timing.
Some agencies won’t let you open an account until certain criteria is met—for example, the employee has started working. Some agencies will even let you submit the application and then reject you, sometimes weeks later. This can lead to a very frustrating experience where your payroll provider tells you payroll will be blocked, since the account isn’t open.
It can be tricky if you are setting up payroll at a reporting-period boundary, such as the end of the quarter. You could be liable for paying taxes, but since it can take some time to open the account, your payroll provider might not file the previous quarterly report. While some payroll providers can file back taxes for you, you typically need to know to ask (sometimes they charge you for it), and in some cases, you’ll have to do it yourself manually.
Physical locations: Is it okay to list an employee’s address?
Most states will ask you for a physical address where the employee will work. This is a vestige of in-office work and is unlikely to change anytime soon. In the meantime, remote companies can list the employee’s address, but make sure the mailing address is the business’s mailing address—ideally a virtual address, as mentioned earlier—you don’t want important letters and notices to get lost.
How long does it take?
Opening accounts can take anywhere from a few days to several months. At Mosey, we see a wide range of timelines, even within the same state agency. As of this writing, the current backlog of Washington unemployment insurance applications is eight weeks long.
If you no longer have employees in a state, it can be tempting to close your accounts, but there are some downsides. First, it can take a while to close them properly. Second, if you end up hiring someone in that state again, you will need to go through what is typically a trickier process to reopen the accounts.
For this reason, remote startups tend to keep accounts open to preserve the option to hire again in the state in the future. Payroll providers typically file zero-dollar returns for you for free, so there is little cost to keeping them open.
If you decide to close the accounts, you will need to follow the process set forth by each agency that administers an account you previously opened. While each agency is different, things to look out for include:
- Paying any existing balance in your account
- Filing a final return to indicate the account should be closed
- An online application for deactivating the account
- Sending a letter
When in doubt, it’s best to contact the state agency directly by phone.
Workers’ compensation insurance
Most states require workers’ compensation insurance coverage. This might sound silly for a fully remote company where everyone is working from home on their computers, but it’s the law. Penalties for not having workers’ compensation insurance can also be quite high (looking at you, New York), so it’s best to get coverage as soon as you can.
Staying compliant and avoiding distractions or fines
Compliance doesn’t end with setting up payroll. Compliance obligations change as your company grows and when legislation changes.
Companies embracing remote work need to be smart about compliance to keep their risk low. Otherwise, they can end up with penalties, fines, and a lot of lost time making things right.
While there are thousands of rules to follow, they fall roughly into the following categories:
- Payroll-related taxes
- HR and labor laws
- Registration with the Secretary of State
- Corporate tax and sales tax
Changing payroll rules
While we’ve talked about what needs to happen to get new hires on payroll in multiple states, there is more that needs to happen to stay compliant. The taxes paid, such as income withholding for employees or unemployment insurance, can change over time.
Some payroll requirements only become applicable after a certain threshold is met. For example, in New York, there is the metropolitan commuter transportation mobility tax (MCTMT) that becomes applicable only after a certain amount of payroll in a calendar quarter and only for employees in certain parts of New York City. Once the threshold is exceeded, businesses need to register and start paying or face fines.
Unfortunately, many payroll providers rely on you to tell them what taxes you want to withhold. That makes it easy to miss and easy to rack up penalties.
Other examples include the withholding tax schedule, which can change as payroll increases in the state—usually from quarterly to monthly to weekly or more. Unless you are paying close attention, it can be easy to miss.
Then there are unemployment insurance tax rates, which typically get updated yearly. Since the rates change, you can end up overpaying or, worse, underpaying and owing back taxes with interest.
This is where having a good setup for receiving notices and letters from state agencies can be a lifesaver. When something bad happens, chances are there is a notice coming in the mail.
HR and labor laws
Compliance requirements change when the law changes, and labor law is the area with the fastest change right now, for multistate employers. Fines are also increasing, as is the level of enforcement. This makes labor law a growing area of risk for remote-first companies, and it’s difficult to keep up with compliance requirements in every employee location.
What can you do to stay on top of it?
The best thing you can do is monitor for changes and keep an eye out for updates from state agencies. Consultants will gladly charge you for this service, but keep in mind that information can fall out of date quickly—the Colorado Equal Pay for Equal Work Act went through several rounds of clarification for employers, months after it was signed into law.
When it comes to family leave, antidiscrimination, antiharassment, and other state-by-state policies, remote employers can simplify things by pegging their policies to California or New York. These states tend to set the highest standard, so by meeting their requirements, there is a higher likelihood you will meet the requirements of other less-stringent states where you have employees.
Be on the lookout for changes to mandatory benefits. For example, California recently completed rolling out mandatory retirement planning benefits for employers with five or more employees. There are also many more states introducing paid family and medical leave legislation over the coming years.
Post or distribute labor law notices and posters. Even though remote companies don’t have the equivalent of a break room, you still need to comply with mandatory notices and posters. (Remember those things in tiny print in the office?) Gathering up all of the required posters and making them available to employees digitally is an easy way to lower risk. Keep in mind the notices and posters also get updated from time to time.
Registration and Secretary of State compliance
As you hire more employees in more places, you’ll need to consider where to register locally. Since most states don’t have a straightforward rule about out-of-state employers with employees working remotely in their state, you’ll need to decide whether to register to do business in the state and register for any other local registrations. Typically, you’ll need to register in any state where your operations constitute “nexus,” a physical connection between your business and a state jurisdiction triggered by actions such as leasing inventory or office space, employing workers, or even attending trade shows.
Each state has a different definition of what constitutes “nexus,” but for businesses with remote employees, it’s a risk-based decision. If you get a letter that says you should have registered with the Secretary of State, then you’ll need to deal with the relevant penalties and fines that come along with it. Consequences generally increase with the length of time and amount of activity in the state, such as the number of employees or the amount of revenue.
Accountants and tax professionals are split about how early-stage startups should think about registering with the Secretary of State when the only presence is an employee working from their home. However, some states like New Jersey are starting to specifically call out remote work as a reason to register.
Corporate taxes and sales tax
For remote startups, having employees in the state as well as customers can be a factor in determining additional tax obligations. As a multistate employer, it’s important to be aware of each kind of tax that might be applicable currently or could become applicable in the future.
Corporate income tax, not to be confused with employees’ income tax withholding, can be triggered as a result of registering with the Secretary of State, having a physical presence, or earning revenue from customers located in the state.
Sales and use taxes can be triggered as a result of having a presence in the state or what’s called “economic nexus”—a threshold of sales or transactions in the state. This can get complicated quickly, so growing revenue in the state is something to keep an eye on. Thankfully there are tools like Stripe and TaxJar, which can make this process easier.
Running a business remotely: Strategies for building remote teams
If you are just starting out, here is a quick framework for setting up your team and promoting employee engagement, while optimizing for increased productivity. I’ve learned this the hard way by building remote teams at companies like Stripe and my own remote-first startup, Mosey.
- Limit time zones initially by establishing compatible working hours.
- Get together quarterly to support company culture.
- Write things down for increased productivity.
- Widen your remote talent pool.
- Stay organized with compliance.
Hire remote team members in a few approved time zones to start
Don’t get me wrong, remote work is great—but one of the immovable issues is time zone. It’s not great to spend your energy staying up late or getting up early to overlap for a few hours with people you are working with closely. This quickly leads to burnout, and it can be avoided.
I suggest instituting a remote-work policy from the beginning that all employees work in time zones that are, at most, three hours away from each other. Even a three-hour difference makes scheduling meetings more difficult, but it is more sustainable for everyone.
Get together quarterly
Being part of a remote workforce doesn’t mean you’ll never see each other in person. In fact, I’ve found the best teams get together at least quarterly.
Spending time face-to-face is important for building company culture. It helps everyone on the team build relationships with each other. It helps the team solve problems that are just easier to discuss around a whiteboard.
The sweet spot I’ve found is around three days—just enough to engage in good discussions, eat a team dinner, and have fun together. Any less, and you won’t be able to cover everything you hoped to. Any more, and it feels forced.
Write things down
The number-one remote-team superpower is writing. This has been covered in great detail elsewhere, but a few practical rules can help you build written communication into the culture of your company.
- Make sure you’ve communicated the expectation that everyone writes things down.
- Take notes at every virtual meeting, rotate who the notetaker is, and share it in a central location (Notion, Coda, email list, etc.) so everyone can access it later.
- If you are considering making a slide deck, write a memo instead (yes, in prose—not bullets).
- Start any nontrivial project by writing a brief, gather feedback in comments asynchronously, and schedule a meeting only if a decision needs to be made.
- Constantly link to and refer to documents, keeping them up-to-date rather than answering questions in Slack repeatedly.
- Write down anything you end up saying or doing more than once.
There’s much more to say, but building this practice early ensures that the default communication pattern is asynchronous. This will scale much better and is infinitely more productive than Zoom meetings.
Widen your search for remote talent
You’re already building a system to support work from many locations simultaneously, so why not make the most of it by broadening your search for remote talent?
When hiring in multiple states, you’ll notice that people come from many different backgrounds and work experiences. Some of the best engineers I’ve hired didn’t come from FAANG (MANGA?) but from a healthcare consultancy, an insurance software company, small dev shops, and even the locomotive industry.
There are many really talented people all over the place—but you may need to change the lens in which you look at talent, in order to see them.
Stay organized with compliance
When operating in many locations all at once, being disorganized can quickly snowball. You will invariably receive a blood-pressure-raising notice in the mail from a state agency, and it makes matters much worse if you can’t track down the information you need to resolve the issue.
Staying organized with things like account numbers, logins, registration dates, and corporate documents is even more important when you are building a remote-first company. Having a central place to save all information related to compliance in each state will be very useful later.
You’ll also want to keep a compliance calendar that is up-to-date with each of your local and federal obligations. This should give you enough warning so that you can file your taxes, annual reports, renewals, etc. on time. Just be sure to keep it updated. (I would venture a guess that the majority of penalties and fines happen to well-intentioned business owners who didn’t have a reminder set up.)
There are certainly a lot of things to consider when starting a remote company. The good news is that all of the benefits of remote work options far outweigh the drawbacks, and it’s getting considerably easier.
If it all sounds complicated, give Mosey a shot—we’ve figured out state compliance so you don’t have to. We’ve built up the expertise and automation so you can run your business, hire employees, and stay compliant in any US state. (Stripe Atlas customers can find a discount for Mosey in the Perks section of the Dashboard.)
The information in this guide is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the guide. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.