Last updated: August 2026

The Convenience of the Employer Rule

What the rule actually does

Most states source wages to the place where the work is physically performed. A convenience of the employer rule breaks that default. Under it, a day a nonresident employee spends working from home counts as a day worked in the employer’s state unless the employee worked from home because the employer required it, rather than because the employee preferred it.

The distinction is necessity versus convenience. If the job cannot be done at the employer’s location and the employee therefore works elsewhere, the day is sourced where the work happened. If the employee could have come to the office and chose not to, the day is sourced to the office state.

For payroll, that means physical presence is not the withholding input in these states. Counting badge swipes or calendar days produces the wrong number.

What counts as the employer’s location

Every convenience rule turns on the employer’s state, and that phrase carries more weight than it looks. It is not a fact about the company. It is a fact about each individual employee.

Four things it is not. It is not the state of incorporation, which matters because a large share of US companies are Delaware entities and Delaware appears on the list below. Being chartered in Delaware does not make an employer a Delaware employer for this purpose. It is not the headquarters address. It is not where payroll is processed or where the payroll provider sits. It is not where the employee’s supervisor happens to live.

What it is: the employee’s assigned or primary work location. New Jersey’s Division of Taxation describes it as the office out of which the employee is supervised. New York’s guidance uses the parallel concept, an assigned or primary work location that is an established office of the employer inside the state. The determination is made employee by employee, which means one company can have some employees inside a convenience rule and some outside it.

Multiple offices

Where an employer has offices in several states, each employee’s primary or assigned office controls. A company with offices in a convenience rule state and a non convenience rule state has two answers, not one.

Offices that have closed

Closing an office does not resolve prior years, and it may not resolve the current one. In the Zelinsky litigation, New York applied the rule to 2020 work days during which the employee was barred from the New York office by executive order, reasoning that an employer permitting remote work is not the same as an employer requiring the work be performed at a specific location outside the state.

Employees with no assigned office

An employee hired to work remotely who has never been assigned to an office is the clearest case for the rule not applying, because there is no established office in the state serving as their work location. It is also the position most likely to be questioned. It is defended with the offer letter, the job posting, the org chart, and the HRIS work location field, not with an argument made after the fact.

This is where payroll systems tend to be wrong. Many HRIS records carry a work location that was set at hire and never revisited, or that was overwritten with the employee’s home address when remote work started, or that still names an office the company has since closed. That field is an input to a sourcing decision. Before evaluating any convenience rule, confirm what it actually says for each nonresident employee and whether it matches the employment record.

Which states apply it

Published lists give counts of five, six, seven, and eight. The disagreement is not really about which states have a rule. It is about what counts as having one, because some states apply the rule to any nonresident, some only against residents of other convenience rule states, and some only to a narrow category of worker.

Applying one criterion, that the state sources a nonresident’s out-of-state work days to the employer’s state when the work was done for the employee’s convenience, eight states currently qualify. They divide into three groups.

Applied to any nonresident: New York, Nebraska, Delaware, Alabama

New York is the most aggressive and the only state with a published factor test. Its rule sits at 20 NYCRR 132.18(a) and has survived constitutional challenge twice, most recently on July 2, 2026 when the Appellate Division, Third Department, decided Zelinsky v. Commissioner of Taxation and Finance. Further appeal is possible.

Nebraska codified its rule and paired it with a threshold. Special withholding rules apply to nonresident employees working seven or fewer employment duty days in Nebraska during a calendar year, and Nebraska uses Form 9N to set the withholding percentage.

Delaware applies a long standing administrative position and has published no factor test comparable to New York’s.

Alabama’s rule comes from a tax tribunal decision rather than legislation, which is why it is missing from lists built only from statutes.

Applied only against residents of other convenience rule states: Connecticut and New Jersey

Connecticut’s rule is at Conn. Gen. Stat. 12-711 and engages only when the nonresident employee’s state of domicile uses a similar test.

New Jersey enacted its version in 2023, effective for tax years beginning on or after January 1, 2023. The Division of Taxation is direct about the mechanism: New Jersey does not have a convenience rule of its own. It applies the rule of the employee’s home state. A telecommuting New York resident working for a New Jersey employer is measured against New York’s test, not a New Jersey one. New Jersey identifies Alabama, Delaware, Nebraska, and New York as the states that trigger it, and excludes Pennsylvania residents because of the reciprocal agreement between the two states. The rule also reaches work done from a third state, so a New York resident working from a vacation home elsewhere is still sourced to New Jersey.

Applied to a narrow category: Oregon and Pennsylvania

Oregon’s rule reaches only nonresidents working in a managerial role for an Oregon employer. For everyone else Oregon sources wages to where the work was physically performed.

Pennsylvania needs the most care, because its published position runs against the New York pattern. Pennsylvania’s doctrine applies where compensation cannot be allocated to an actual place of performance. The Department of Revenue’s telework guidance states that a nonresident required to telework full time from home in another state should treat that compensation as non-Pennsylvania source income even when the employer is in Pennsylvania. Some national lists classify Pennsylvania as a full convenience rule state. We classify it as limited, because the Department’s own guidance is the better authority on Pennsylvania’s position. Philadelphia is a separate question: the city has traditionally applied its own convenience treatment for Wage Tax purposes to nonresidents based in Philadelphia.

Not in force, despite appearing on many lists: Arkansas and Massachusetts

Arkansas adopted a rule by regulation during the pandemic and the legislature eliminated it in 2021. Massachusetts adopted a temporary sourcing rule with the same effect, which has expired.

Where our sourcing is thinner: New York, Nebraska, Connecticut, New Jersey, and Pennsylvania are confirmed against statute, regulation, or the state’s own department of revenue. Delaware and Alabama are identified by the New Jersey Division of Taxation, which must name triggering states in order to administer its own rule, and by the Connecticut General Assembly’s research office. Neither publishes a factor test. Oregon’s managerial limitation is drawn from secondary analysis. Confirm any state’s current position with that state’s department of revenue before configuring withholding.

New York is the only state that published a scorecard

The other seven apply their rules through judgment, with no published factor list. New York enumerated a test.

TSB-M-06(5)I, issued May 15, 2006, sets out when a home office qualifies as a bona fide employer office. If it qualifies, normal work days spent there are treated as days worked outside New York. The memo applies to tax years beginning on or after January 1, 2006 and governs the Yonkers nonresident earnings tax on the same terms. For part year residents it applies only to the nonresident portion of the year.

One threshold question comes before all of it. The test engages only when the employee’s assigned or primary work location is an established office of the employer in New York State. If the employee’s primary work location is a bona fide employer office outside New York, home days are already out of state days and the test never runs.

The primary factor

The home office contains or is near specialized facilities that cannot be made available at the employer’s place of business. The memo’s own example is a test track for evaluating vehicles. Equipment that could physically be installed at the employer’s New York location does not meet this factor, even if it currently sits at the employee’s home.

The six secondary factors

1. The home office is a requirement or condition of employment.
2. The employer has a bona fide business purpose for a location where the employee’s home is.
3. The employee performs some core duties of the job at the home office.
4. The employee meets clients, patients, or customers there on a regular and continuous basis.
5. The employer provides no designated office space or other regular work accommodation at one of its regular places of business.
6. The employer reimburses substantially all home office expenses, defined in the memo as 80 percent or more, or pays fair rental value for the space and furnishes or reimburses substantially all supplies and equipment.

The memo was written before routine video conferencing and does not address whether virtual client meetings satisfy factor four. It remains an open question.

The ten other factors

• Separate business telephone line and listing.
• Home office address and phone on the employer’s letterhead or business cards.
• A specific area used exclusively for the employer’s business and separate from the living area, which fails if the space is used for both business and personal purposes.
• Inventory or product samples kept there when the employer sells at wholesale or retail.
• Employer business records stored there.
• Signage indicating a place of business.
• Employer advertising showing the home office as a place of business.
• Business insurance policy or a business rider on the homeowner policy.
• The employee is entitled to and actually claims a federal home office deduction.
• The employee is not an officer of the company.

The threshold, and the one factor that no longer exists

A home office qualifies if it meets either the primary factor, or at least four of the six secondary factors and at least three of the other factors.

That is an either or, not a cumulative score. Meeting the primary factor alone is sufficient. Meeting three secondary factors and nine others is not.

The other factor list has a problem the 2006 memo could not anticipate. It asks whether the employee claims a federal home office deduction. Employees have not been able to claim one since 2018, when the Tax Cuts and Jobs Act suspended miscellaneous itemized deductions, and the One Big Beautiful Bill Act made that suspension permanent at IRC section 67(h). A W-2 employee cannot satisfy that factor at all.

The threshold is still three. The reachable pool is nine.

The accountable plan route is what remains. An employer that reimburses home office expenses under a written accountable plan excludes the payment from wages entirely, with no income tax and no FICA, and the reimbursement also feeds secondary factor six.

Qualifying changes the allocation, not the liability

A qualifying home office does not exempt anyone from New York tax. It changes which days count.

Days actually worked in New York remain New York source income in every case. What qualification changes is the treatment of normal work days spent at the home office, which move from the New York column to the outside New York column. A day at the home office that is not a normal work day is a nonworking day and does not enter the calculation on either side. Responding to occasional calls or email, reading professional material, or being available if needed does not make a day a normal work day.

Where payroll actually gets this wrong

The employer does not make this determination. The employee does, on Form IT-2104.1, the New York State, City of New York, and City of Yonkers Certificate of Nonresidence and Allocation of Withholding Tax.

Part 1 asks the employee to certify nonresidence and to estimate the percentage of services performed within New York State. Part 3 does the same for Yonkers. Part 2, for New York City, carries no percentage, because the city does not tax nonresident wages.

The form’s instructions say the percentage may be figured on days, miles, time, or similar criteria, and offer one example: an employee working in New York two days out of five performs 40 percent of services in New York.

The instructions never mention the convenience of the employer rule.

So consider an employee who lives outside New York, is assigned to the employer’s New York office, and works three days a week from a home office that does not qualify as a bona fide employer office. Following the instruction on the form, that employee counts two days in five and writes 40 percent. Under the convenience rule the correct figure is 100 percent, because non qualifying home office days are New York work days.

Two documents from the same department, neither referencing the other, and the one the employee actually fills out points at the wrong answer.

The consequences fall on both sides. The form states that a penalty of 500 dollars may be imposed for furnishing false information that decreases the withholding amount. The employer withholds on the percentage supplied, must keep the certificate, and must produce it for inspection by the Tax Department. The employer has the exposure and no independent way to verify the number.

The employee must also notify the employer within 10 days of any substantial change in the percentage of services performed within New York State or Yonkers, or of a change from nonresident to resident. Remote schedules change. This is a recurring obligation, not a hire date form.

Nebraska runs the same pattern with a different form. Form 9N asks the nonresident employee to designate the percentage of wages subject to Nebraska withholding, and the employer withholds on what the employee certifies. The instrument differs by state; the exposure structure does not.

Which factors an employer can actually change

Every one of the six secondary factors is an employer decision. An employee cannot move the secondary count by a single point.

Employer controlled and inexpensive: written condition of employment language, a documented business purpose for the location, no designated office space at a regular place of business, employer records stored at the home office, a separate business phone line and listing.

Employer controlled and expensive: reimbursement at 80 percent or more, which is the one lever with real spend attached and the one that also carries a payroll tax benefit through an accountable plan.

Outside anyone’s control: officer status, specialized facilities, and whether the employer sells at wholesale or retail.

Before treating a residence as a place of business through signage, advertising, or stored business records, consider what else that establishes. Holding out a home as a place of business can bear on state tax nexus, local business registration, zoning and homeowner association restrictions, and workers compensation coverage. Those questions belong with counsel before the change is made, not after.

What to do this week

Pull every nonresident employee whose assigned work location is in a convenience rule state. Confirm a current certificate is on file for each one. Compare the percentage on each certificate against how that employee actually works, using the convenience rule rather than physical presence. Where a certificate is stale, request a new one. Where a home office position is being asserted, document each factor now, while the evidence is contemporaneous, because a certificate challenged three years from now is defended with records that existed at the time.

This is not legal or financial advice. Consult a qualified professional for your specific situation.