Hiring a Remote Employee, Part 3: Payroll & State Business Registration

Emily Lewis

In part 1 and part 2 of this series, I detailed the human resources aspects of hiring my first employee. Everything from working with an HR consultant to new hire documents to electronic storage and record retention.

In this part 3, I'll cover setting up payroll and share what was needed to accommodate the fact that my first employee lives in a different state than my business operates.


As I mentioned in part 1, I made arrangements with my accountant, Rachel Kefauver, to handle payroll processing and tax preparation. But just because my trusted accountant was going to do the heavy lifting didn't mean I was free of responsibility. Also, I needed to have this setup before Lea's start date.

To start, I needed to tell Rachel:

  • How often I will pay Lea (e.g. weekly, bi-monthly, monthly)

  • What Lea's hourly rate will be

  • How Lea wants to be paid, either check or direct deposit

  • An estimate of quarterly gross payroll

  • Whether I would be paying payroll taxes online

  • The state Lea resides in

From this information, Rachel was able to do what she needed for her firm to handle my payroll, including advising me on what days of the month (and time of day) I needed to report hours to her so that Lea's paycheck could be processed on time. She also advised me to setup an account with EFTPS, the IRS' Electronic Federal Tax Payment System, to pay payroll taxes (which I'll detail further in part 4).

She also did some research on Washington state unemployment requirements. Because Lea is a resident of Washington, she's considered a Washington employee not a New Mexico employee. As such, I'm responsible for unemployment in Washington, not New Mexico.

Rachel's firm uses Sage 50 (formerly Sage Peachtree) for payroll processing. She set up my business with an account and handled the direct deposit applications:

  • Lea had to complete an employee direct deposit authorization for Sage 50 and provide a voided check.

  • I had to complete the employer direct deposit authorization, along with a voided check for the bank account payments would be sourced from.

Once Rachel had all of the forms, accounts and information, including Washington tax rates and schedules, payroll really was a breeze for me. Once a month, I report hours. Rachel and her team do their magic: calculating withholding and deductions, processing with Sage 50 for the direct deposit, sending me a monthly payroll report and sending Lea the equivalent of a paystub. The money lands in Lea's bank account a couple of days later. Presto!

Economic Nexus in Washington

While the payroll side of things turned out to be quite simple, having an employee in another state proved far more complex. As I mentioned, I have to pay unemployment taxes for Washington state. Rachel and her team would do the actual tax calculation for me each quarter, but I needed to set up an account with Washington's Employment Security Department (ESD) in order to receive an Employment Security Reference Number (necessary for filing) and to make the tax payments.

This proved to be a proverbial rabbit hole. Fortunately, every single Washington agency or department I contacted was super helpful. Every time (and there were many, many times).

It began with trying to setup an ESD account. Turns out, you can't do that without first applying for a Washington business license. And, upon further research, I discovered that not only did I need to register my business to get a Washington license, I also had to apply to be a Foreign Limited Liability Company in Washington.

This came as a huge surprise to me, because my business is already registered as an LLC in New Mexico. Doesn't matter. Washington state has an economic nexus with businesses in certain classifications. And, by virtue of having an employee living and working in Washington, Emily Lewis Design has a nexus with Washington.

To be honest, what an economic nexus is and what qualifies a business with a nexus it is still a little fuzzy for me. There is a pretty decent video introduction available and, as I mentioned, a phone call to any Washington agency is likely going to give you a very helpful person to answer your questions.

For me, my bottom line understanding was:

  • I first needed to register with the Department of Revenue (DOR)

  • I then needed to apply for a business license

  • Once approved for both, I'm responsible for a whole range of WA taxes (which I'll detail in part 4) beyond the unemployment taxes that started this journey.

Washington Foreign Limited Liability Company

In order to register my business as a Foreign LLC with Washington's DOR, I had to designate a Registered Agent. This is a person with a physical address in Washington, who can receive legal documents on behalf of Emily Lewis Design. To this day, I don't understand this requirement. As the sole principal for my company, I believe that legal documents should be sent to me, regardless of where I reside.

But these are the rules, so I designated Lea as my Registered Agent. Alternately, I could've hired a firm in Washington that provides registered agent services, but that was extra money and some risk with an unknown company. And I trust Lea, so that's what we moved forward with. And we agreed that any documents she receives, she will first scan and send to me for my immediate consideration, and then will mail the originals to me.

Other than seemingly endless application forms and fees, the only other point worth noting was that in order to register as a Foreign LLC, I had to provide a “Certificate of Existence or similar import (not more than 60 days old) from original state.”

Again, after much research and more phone calls, I discovered that a Certificate of Existence is equivalent to New Mexico's Certificate of Good Standing. Now, New Mexico is eons behind Washington in terms of web-based applications and good customer service. So this meant that I had to fill out a request form, mail it with a check to NM Secretary of State and wait. The only highlight of this particular process was that my Certificate arrived in about five days, after which I could proceed with the Washington side of things.

Please note that every single state is different, so what I encountered in Washington will likely be different depending on the states you are dealing with. Do your research and be prepared for paperwork, fees, frustration and feeling clueless.

Washington Employment Requirements

Once I jumped through all of those hoops, I could crawl out of the rabbit hole. Washington (rather expeditiously) processed my registration and business license. That triggered information and notifications from all of the state agencies I would have to report to, including those filing taxes and paying worker's compensation insurance (coming in part 4!).

Aside from state tax reporting, Washington requires that I report new hires within 20 days of hire. Apparently new hire reporting is required in every state, per federal law. I did this online and it was the easiest and fastest application I completed in this journey. All I needed to provide was Lea's:

  • Name

  • Date of birth

  • Address

  • SSN

The last non-tax requirement I needed to fulfill for Washington employment was posting workplace posters. These were sent to me, via mail, by the Washington State Department of Labor & Industries with instructions to post in the workplace.

Well, with Lea as a remote employee, I wasn't sure what constituted the workplace. My home office or hers? And was it really necessary to physically post these in our homes (which serve as our offices)?

A quick call to my contact at L&I, and I had my answers. She advised that I:

  • Keep the posters on file to stay “in compliance,”

  • Have a phone call with Lea to review the material and make note of the date and time of the call,

  • And send digital copies of the posters to Lea for her reference and files.

Again, every state is different so be prepared to do research (or hire a lawyer/consultant who can tell you what to do).

Up Next

In the 4th and final part of this series, I'll dive into all of the employment-related taxes and fees (both federal and state) for which I'm now responsible, as well as the online services I'm using to make payments.

Stay tuned!

Legal Blah Blah

I hope it goes without saying, but please don't take anything I've posted here as anything other than my and Lea's own personal experiences. What worked for us is just that … what worked for us.

If you need expert advice, seek an expert.

Subscribe to the Forecast

Resources for smart business and smart websites

Ready to See Results?

We've got some bright ideas — let's talk!