Employee wants to work remotely from Texas - we're a Delaware C-Corp in NY. Compliance nightmare?

One of our best engineers just asked if he can work remotely from Austin for 6 months while his partner does a fellowship there. We're a 15-person startup incorporated in Delaware, office in NYC.

Our lawyer is saying this creates a "nexus" in Texas and we'd need to register as a foreign entity, get workers' comp insurance there, withhold Texas taxes, etc. This seems insane for one person working remotely for 6 months.

Is this really that complicated or is our lawyer being overly cautious? What do other startups do?

Your lawyer is not being overly cautious. This is a real compliance issue. The main concerns:

• Foreign entity registration in Texas (required if employee is there long-term)
• State tax withholding and unemployment insurance
• Workers' compensation insurance in Texas
• Potential sales tax nexus if you have customers in TX
• Compliance with Texas employment laws

The 6-month thing is borderline though. Some states have temporary worker exemptions.

Employment lawyer here who deals with this constantly. Your lawyer is correct, but the level of urgency depends on a few factors:

Texas doesn't have a bright-line rule for "temporary" vs. "permanent" remote work, but 6 months is long enough that I'd recommend treating it as establishing presence. Here's what you actually need to do:

1. Foreign entity registration: Register to do business in Texas. One-time $750 fee + annual franchise tax report
2. Tax withholding: Register with Texas Comptroller. Note: Texas has no state income tax, so this is actually simpler than NY
3. Unemployment insurance: Register with Texas Workforce Commission
4. Workers' comp: Get a Texas policy or rider on your existing policy

Total setup cost is probably $2K-3K including your lawyer's fees. Not nothing, but not crazy either.

That's helpful, thanks. What if we just... don't tell Texas? Like, he keeps his NY address on file and files NY taxes? Is that a thing companies do?

I know it sounds sketchy but I'm trying to understand the actual risk here.

I can't recommend that. Here's why it's risky:

• If he gets injured on the job in Texas, you don't have TX workers' comp coverage. That's a big liability.
• If Texas discovers you have an employee there without registration, they can impose penalties and demand back taxes/fees.
• Your employee is committing tax fraud by claiming NY residency while living in TX.
• If you ever get audited or go through due diligence for fundraising/acquisition, this becomes a disclosed liability.

Companies do this all the time, yes. But it's playing with fire. The question is whether saving $3K is worth the risk of a much larger problem later.

From a VC diligence perspective: we see this issue constantly and it's a red flag if companies haven't properly registered in states where they have employees. Not a deal-killer, but it has to be cleaned up pre-closing.

We had one portfolio company that had 3 remote employees and hadn't registered in any of their states. Cost them about $15K total to clean up retroactively, plus penalties. Just do it right from the start.

We use Deel for exactly this reason. They handle all the compliance, registration, and payroll for remote employees in different states. It's like $50/month per employee.

Way easier than trying to figure this out yourself, especially if you plan to hire more remote people in the future.

Okay that makes sense. I looked into Deel and Rippling - both seem to handle this. Probably the path of least resistance smh.

One more question: what if it's truly temporary, like 2-3 months instead of 6? Is there a safe harbor for short-term remote work?

It's state-specific. Some general guidelines:

• Less than 30 days: Generally safe to treat as business travel
• 30-60 days: Gray area, but probably okay if it's truly temporary
• 60-90 days: Should probably start compliance process
• 90+ days: Definitely need to be compliant

These aren't hard rules though. California, for example, is extremely aggressive and will claim nexus even for short-term remote work.

The safest approach: if someone is working remotely from another state for more than 30 days, get compliant tbh.

Also keep in mind that Texas has franchise tax which is basically a gross receipts tax. If you register there, you'll need to file an annual franchise tax report even if you owe $0.

It's not a huge burden but it's one more compliance thing to track. We have employees in 8 states now and the administrative overhead is real.

Update: We're going with Rippling. They'll handle the Texas registration and payroll compliance for $49/month. Worth it to not have to think about this.

Thanks everyone for the advice. Glad I asked before just winging it.