Why Health Systems Struggle with Multi-State Payroll

The Changing Landscape of Healthcare Employment

Before COVID-19, most health systems primarily hired workers within their own states or regions. Physicians, nurses, and administrative staff were expected to work in hospitals, clinics, or other physical locations. However, the pandemic reshaped the way healthcare organizations function, forcing many to adapt to remote and hybrid work models. During the crisis, telemedicine, remote medical coding, virtual nursing, non-clinical support staff and other remote roles expanded rapidly. Health systems had to cast a wider net to attract skilled professionals, leading to a significant increase in hiring across multiple states. While this shift has improved workforce flexibility, it has also introduced new operational and compliance challenges, particularly in multi-state payroll management.

The Complexities of Multi-State Payroll

Unlike other industries where remote work has been normalized for years, health systems are now dealing with the complexities of multi-state payroll for the first time. Payroll compliance becomes exponentially more complicated when a workforce extends beyond a single state’s borders. Key challenges include:

1. Navigating State-Specific Tax and Labor Laws

Every state has its own tax withholdings, unemployment insurance rules, and labor laws. For example:

• Some states require employers to withhold state income tax, while others do not.
• Unemployment insurance rates vary by state and must be registered accordingly.
• Overtime laws, minimum wage requirements, and paid leave regulations differ widely.

Failing to comply with these laws can result in costly fines and legal liabilities for health systems.

2. Workers’ Compensation Compliance

Health systems must provide workers’ compensation insurance according to each state’s regulations. This creates additional administrative burdens, as coverage requirements, claim procedures, and premium costs fluctuate across state lines. This further complicates multi-state payroll use-cases.

3. Payroll System Limitations

Many health systems have payroll systems designed for in-state or regional employment models. Expanding to a multi-state workforce often requires system upgrades or third-party integrations to handle tax calculations, compliance tracking, and automated reporting.

4. Credentialing and Licensing Complexities

For healthcare professionals, payroll isn’t just about compensation—it also ties into licensing and credentialing. Different states have different licensing boards and renewal requirements, adding another layer of complexity to payroll and employment verification.

The Need for Employer of Record (EOR) Solutions

Given the regulatory minefield of multi-state payroll, many health systems are turning to Employer of Record (EOR) services to manage compliance like this health system did. An EOR takes on the responsibility of:

• Ensuring payroll tax compliance in every state where employees are located.
• Managing workers’ compensation across different jurisdictions.
• Handling benefits, onboarding, and HR compliance in accordance with state laws.

By leveraging an EOR, health systems can focus on delivering quality patient care rather than navigating payroll and employment law intricacies.

Next Steps to Improve Multi-State Payroll

The rise of remote work in healthcare has created new opportunities but also significant payroll challenges for health systems. As organizations continue expanding their workforce beyond state lines, the need for streamlined multi-state payroll solutions will only grow. Health systems that adopt technology-driven EOR platforms can stay compliant, reduce administrative burdens, and focus on their core mission—providing exceptional healthcare services.If your health system is struggling with multi-state payroll compliance, consider partnering with an EOR provider to simplify the process and ensure regulatory adherence.