I’ve dealt with this as a corporate payroll manager for well over 20 years. While COVID and the increase of remote workers made this more of an issue for more companies, the concept is not new.
When you have an employee working in another state, one where you have not previously had a physical presence (an office, a plant, a store location, etc.,) you do now. It is called creating NEXUS.
If the employee is working from home, their home address becomes a de facto office location for your company. The company will register in that state (and local jurisdiction if applicable) for withholding tax, unemployment and could trigger other taxes such as sales and use tax, corporate tax, and has implications on workers compensation insurance. Ohio and Washington state have mandated state-run workers compensation programs so a company with employees in either of those states will have to set up accounts and pay WC to the state.
And yes, the employee and employer are subject to the state wage and hour laws in the state in which the employee is physically working.
The issue of having workers working in another country is a whole other topic.
What gets complicated is where you have an employee working in multiple states but that is a whole other conversation. I know the American Payroll Association has long been advocating legislation to streamline tax withholding where employees work in multiple states and in favor of nationwide reciprocity for all 50 states.
Speaking of the American Payroll Association, the have a report on this topic that you may also find useful.
https://f.hubspotusercontent10.net/hubfs/516067/Presence-NexusReportMarch2022Final.pdf
Excellent comment - especially the concept of nexus. On the subject of multiple employees & multiple nexus locations, I’d say the NFL & NBA would be very interested in advancing the discussions on reciprocity, given the large traveling payroll for games across the country. I certainly don’t envy the lower-paid support staff needing to do multiple state tax returns or the expense of tax professionals to keep it straight.