How do you handle unemployment taxes for interstate employees?

The states have adopted a uniform definition of employment to ensure that no employer is required to make multiple contributions when an employee works in more than one state. This definition provides coverage for a multi-state worker in one state only-typically, the state in which the worker will most likely look for a job upon unemployment. The definition lists factors, in order of preference, for determining state coverage. These factors are:

• The place where work localized,

• The site of the base of operations,

• The place from which operations are directed or controlled, or

• The employee's residence.

Localization. If all the work is performed in one state, it is clearly localized in that state and constitutes employment under the law of that state. If part of the work is performed outside the state, however, all the work may still be considered localized in that state if the services performed outside the state are incidental to the services performed within the state.

Base of operations. If an employee's services are not localized in any state and some portion of the services is performed in the state where the base of operations is located, that state would be the proper one to receive contributions computed on the individual's entire employment.

Place from which operations are directed or controlled. If the work is not localized in any state and there is no fixed base of operations, the services may still be entirely covered by the law of a single state based on where the place of direction or control is located, provided that some of the work is also performed in that state. Wherever an employer-employee relationship exists, the location of the place from which direction and control is exercised may be determined, no matter how general the control or how infrequently the directions are given.

Residence. If the other tests do not apply, an individual's entire service is covered in the state in which he or she lives, provided that some of his or her service is performed in that state.