Nearly 10% of small businesses that grow add employees across state lines

Introduction

Every small business that adds an employee is betting there's more work than the current team can handle. Most of the time, that bet plays out by adding a new employee or location in the same state the business is already operating. The business understands this market, they understand the problems they’re trying to solve in the community, and adding an employee is the natural next step.

However, sometimes the next hire lives somewhere else entirely. A ten-person marketing agency finds the right account manager three states away and hires them to work from home. However it happens, the business now employs someone in a state it has never operated in before, and that hire brings its own rules: tax registration, withholding, filings that follow wherever the paycheck lands.

We used Gusto's payroll data on small businesses to ask three questions about that moment. How often does adding a location mean adding a new state? What does crossing a state line actually look like, a new office or a single remote hire? And does a business that crosses a state line grow any differently than a similar business that didn't?

Our findings show that small businesses that expand beyond state boundaries grow in very similar ways as those that stay in their home state, but they face a brand new set of regulatory and compliance challenges.

Key findings

• About 1 in 10 small businesses that open a second location put it in a different state, more than you'd expect from businesses that mostly expand close to home.

• 9 times out of 10 new-state entrants hire a single employee, and roughly 5 in 6 of those new states never see a physical office. These businesses enter a new state through hiring, and maintain their state presence through this new employee.

• Matched against a stay-local twin, the business that expanded into a new state for the first time grew at nearly the same rate as those that stayed in their home state. The odds of growth were nearly 1:1 on state expanders or stayers, suggesting that businesses that move states for the first time may be facing the same benefit as those that move within states yet face new compliance requirements.

About 1 in 10 second locations move into a different state

Small businesses that add locations have chosen new states about 10% of the time since 2019. Many people expect that small businesses are always hyper-local, yet our findings suggest that small businesses regularly find ways to expand beyond their home state.

We checked this in a sample built to mirror the industry, size, and region mix of U.S. small businesses, looking at every business in that sample that added a genuine second commercial location between 2019 and 2025, one that lasted at least six months and had more than one person working there. About 10% of those new locations were in a different state than the business's original one, the other 90% stayed inside a state the business already knew. 

That number holds up over time, too. Checked separately in an independent sample drawn each year from 2019 to 2025, the crossing rate never strays far from 10%, as low as 9% one year and as high as 11% another, with no upward or downward drift.

This consistency suggests that small businesses that expanded to multiple states may do so for similar reasons or in similar ways. While we saw a brief increase to about 11% of expansions happening across state lines during the Covid-19 pandemic of 2020-21, the range remained incredibly small. Despite world events, small businesses expand in similar ways, and generally that’s through adding a single employee instead of a storefront.

9 times out of 10 new-state entrants hire a single employee

While some small businesses expand into a new state by adding a new location, the more common way of doing so is through hiring an employee who works from the new state. 

Crossing a state line through a single hire is more common than through opening a physical location, and when it happens, it is almost always small. About 9 in 10 of these new-state hires are exactly one person, brought on as an ordinary new hire rather than an existing employee relocating. These businesses are expanding, and often do so through hiring a single employee.

For more than 80% of these businesses, the single hire is their only expansion into the state. They never build a physical location, as confirmed by measuring the employee’s work and home address. That means these businesses have no lease, no signage, and nothing to mark the moment beyond a new name and address on payroll.

This is primarily limited to jobs that can best support remote hires. Professional and technical services accounts for about a quarter of these new-state hires on its own; add information businesses and that share climbs to roughly a third. While traditionally white collar sectors are the most prevalent to remote new state hires, retail, health care, and wholesale trade each contribute meaningfully to new state additions from small businesses.

These businesses tend to be young, too: the typical one is about 4 years old when it crosses a state line.

Businesses that cross a state line for the first time grow at similar rates as those who grow in their home state

A business that crosses a state line tends to grow right in step with a similar business that stays put.

To test that, we matched every small business that hired its first employee in a new state against the closest thing to a twin: a business that hired someone around the same time, in the same industry, and at a similar size, but stayed inside its own state. A year later, the two track each other closely. Among first-time movers, the business that crossed a state line was no more likely than its matched pair to grow. They had equal odds of growth. Businesses that were already operating in more than one state and added yet another ran a few points behind their twins, 47.1%, a gap small enough to be a few percentage points, but real enough to survive every check we ran.

That's an ordinary growth pattern. Crossing a state line looks like any other hire a small business makes when it needs more help than its current team can give. What's different is what comes with it. A recent MetLife and U.S. Chamber of Commerce report found that half of small business owners already say they spend too much time and money on compliance, and that it's holding back their growth; 69% said they spend more per employee on compliance than larger competitors do. That research doesn't isolate the specific cost of crossing a state line, but a business growing at an entirely ordinary pace, while now also registering, withholding, and filing in a state it didn't operate in a year ago, is carrying a real cost its twin never has to.

Conclusion

For the owner actually living this moment, the takeaway is almost mundane, and that's the point. Crossing a state line for the first time doesn't mean the business is doing something unusual or risky. It usually means hiring one more person, the same decision the business has made many times before, just in a new state's tax system this time.

The obligations that come with it, registration, withholding, the paperwork that follows, apply the moment that hire happens, whether the business meant to expand into a new market or just found the right candidate three states away. Growth doesn't decide whether the rules apply. It only decides how ready the business is to handle them.

Methodology

This analysis uses Gusto payroll data on small businesses that ran at least one payroll between 2019 and 2025. A "second location" is a distinct work address, identified by coordinates, that a business adds beyond its first one, persists for at least six months, and has more than one person working there at some point; this excludes relocations, where a business's original location empties out rather than gaining a second one alongside it. A "new state" is identified the same way using each employee's work address, including fully remote employees; the analysis explicitly allows a crossing to be entirely remote, since that turns out to be the common case.

The roughly 10% crossing rate is measured on the addition-only definition above, at a 6-month durability bar, and checked separately in an independently-drawn sample for each year from 2019 to 2025. Each year's sample is built to mirror the industry, size, and region composition of U.S. small businesses (the same sampling approach behind Gusto's Small Business Jobs Report, benchmarked to Census QCEW establishment data), restricted to businesses with 49 or fewer employees. That check used a closely related but not identical definition of "second location" than the addition-only figure above; both land in the same 9%-11% range across every year checked.

The single-hire and no-office figures describe every business observed operating in a single state before adding an employee in a new one, or already operating in more than one state before adding yet another, whether or not a physical location ever followed. Along with the industry mix and firm age above, these are measured on the same representative sample as the crossing rate, restricted to businesses with 49 or fewer employees.

The growth comparison matches each mover to a business that stayed inside its own state, using nearest-neighbor matching on a propensity score built from industry, calendar year, and pre-hire headcount. In practice, more than 96% of matched pairs share the same industry and more than 96% share the same year, though the match is not exact on either dimension, and pre-hire headcount is matched as a continuous covariate rather than an exact figure. The reported figure is the share of matched pairs where the mover's 12-month headcount change exceeded its matched control's. That is an association between crossing a state line and subsequent growth, not a causal estimate; it does not rule out some other unmeasured difference between movers and non-movers. The comparison covers headcount at a 12-month horizon only.