Employee wants to move from California to Texas - what are the tax/legal implications?

I run a small software company incorporated in Delaware with 8 employees. We're based in California (where I live) and all employees currently work in CA.

One of our senior engineers just told me he wants to move to Texas in March. He wants to stay employed with us and work remotely from Austin. I told him that's fine in principle, but now I'm realizing I have no idea what the legal/tax implications are.

Questions:

• Do I need to register the company in Texas?
• Do I need to withhold Texas state income tax? (Wait idk, does Texas even have income tax?)
• Do I need Texas workers comp insurance?
• Does this trigger any other compliance requirements?
• Can he still be employed under California law or do Texas employment laws apply?

Our payroll is currently through Gusto but I'm not sure if they handle multi-state employees automatically or if I need to do something special.

Is this going to be a huge headache? Part of me wants to just tell him he can't move, but that seems harsh and probably bad for retention.

One more thing to consider for the future: If you're going to allow employees to work from any state, you should implement a remote work policy that addresses this proactively.

Things to include:

• Which states you're willing to hire/retain employees in (some startups exclude states with difficult compliance like New York, California, Massachusetts)
• Approval process for relocations
• Who pays for relocation-related costs (registered agent, compliance setup, etc.)
• Timeline for notifying company of moves (30 days advance notice)
• Whether salary will be adjusted based on location

Some companies use EOR (Employer of Record) services like Deel or Remote.com to avoid registering in every state. The employee is technically employed by the EOR, who handles all compliance, then contracts their services to you. More expensive but way less administrative burden.

The multi-state tax issue for remote workers involves several layers: (1) income tax withholding — employer must register in the new state and withhold, (2) nexus — employer's connection to the new state may trigger business tax obligations, (3) unemployment insurance — different state, different UI rates, (4) workers' comp — coverage may need to change. Many employers are setting up "approved remote states" lists to manage this complexity. If your state isn't on the list, you may need to negotiate.