Offering benefits when you expand to new states

Offering Benefits When You Expand to New States (A Practical Guide)

When your business expands into a new state, your current benefits plan might not always follow. Many health insurance policies are tied to the state where your company is headquartered, which means employees in other states may only have access to out-of-network or emergency-only care. This is commonly known as the network trap.

Here, we’ll break down some of the challenges that accompany a business’s growth into new states, including health insurance, state-mandated benefits, differences in retirement plans, benefits equity and staying compliant across geographical locations.

The health insurance hurdle: networks & portability

For many, if not most, small to mid-sized employers, health insurance coverage often ends at the state line. Common HMO plans are built for localized teams, so a plan that works in Missouri may not work for new hires if you expand into Mississippi. Insurance policies are state-mandated and underwritten for that particular state’s care costs. When your employees live elsewhere, claims are essentially out of area, meaning limited network access along with higher costs.

As small businesses expand, many don’t consider unifying coverage. They may add piecemeal lines of coverage which brings added complexity and administrative burden. While some insurance carriers do offer multistate plans, they are generally patchwork solutions with few networks and limited coverage. National PPOs and EPOs, on the other hand, provide better overall coverage.

PEOs, though, break state boundaries. A PEO aggregates employees across clients and state lines, bringing Fortune 500-caliber benefits to even the smallest of businesses. A PEO like ADP TotalSource is built for your growth, allowing you to expand into new states with ease, saving you time, frustration and money in the long run.

State-mandated benefits you can’t ignore

When expanding into new states, there are benefits beyond health insurance you’ll need to consider. Some states now require employers to offer coverage for pieces like disability and paid leave. As of early 2026, the five states that currently require employers to provide short-term disability insurance (STD) coverage are:

• California
• New York
• New Jersey
• Rhode Island
• Hawaii

A growing number of states now also require paid family and medical leave (PFML) coverage. This benefit is quickly expanding amongst states and is completely distinct from federal FMLA. Some of the states that currently require PFML coverage are Colorado, Connecticut, Maryland, Massachusetts, Oregon and Washington.

The retirement wave: state auto-IRAs vs. 401(k)s

Certain states have a retirement savings mandate, and businesses can choose to enroll in the state-sponsored plan or sponsor a plan themselves through the private market. Employers do not sponsor the state’s plan or contribute to it; instead, they register with their state’s program, provide employee information and facilitate payroll deductions. While the process varies slightly by state, it typically includes:

• Registering your business through the state’s retirement savings portal (e.g., CalSavers in California, Illinois Secure Choice in Illinois)
• Submitting employee information (names, SSNs or tax IDs, contact details)
• Setting up payroll deductions at the state’s default contribution rate (often 5%, with automatic annual increases unless employees opt out)
• Uploading ongoing payroll files so employee contributions can be transmitted to the program
• Tracking employee eligibility and opt-outs

If you’re required to offer a retirement plan, a PEO can meet that requirement. Some PEOs offer Multiple Employer Plans (MEP), which can be an attractive option for companies that want to offer a robust retirement plan without the high costs and complex administrative burdens associated with maintaining a standalone retirement plan.

Employers can also explore state auto-IRAs, which are designed as basic Roth IRA programs (while most state programs are Roth IRAs, some offer Traditional IRAs) for workers without access to employer-sponsored plans. As a result, they do have some limitations compared to 401(k) plans:

• Lower contribution limits
• No employer match or profit-sharing (some state programs do allow employer contributions, such as Massachusetts’s CORE Plan, which is a 401(k) Multiple Employer Plan)
• Limited investment options

State auto-IRA noncompliance penalties

Ignoring state mandates can end in non-compliance, with financial penalties attached. A business in California, for example, may be hit with a penalty of $250 per eligible employee after 90 days of noncompliance, and an additional $500 per eligible employee after 180 days (total potential penalty). In Illinois, a business ignoring state mandates may garner penalties of $250 per employee per year for the first year of noncompliance, and $500 per employee per year for subsequent years. Penalties are generally assessed by state agencies and can accumulate quickly for growing businesses.

State auto-IRA multistate example

Operating in multiple states makes compliance more complex. For instance, a business with employees in both California and Illinois would need to:

• Register separately with CalSavers and Illinois Secure Choice
• Track different enrollment deadlines based on employee headcount in each state
• Monitor separate penalty structures
• Upload payroll files to two distinct platforms
• Manage employee communications under two different state regulatory frameworks

Each program operates independently, with its own administrative systems, timelines, and enforcement rules. For small businesses without dedicated HR staff, this can create additional oversight and payroll coordination requirements.

The fairness factor: ensuring benefits equity

Benefits equity often becomes an issue only after a gap appears. As companies grow, especially across state lines, well-intentioned decisions can have knockdown effects that create differences in coverage. Even when differences are driven by state law, employees may simply see unequal support, which can affect morale and cultural unity.

To help ensure benefits equity, you could:

• Use a national benefits model
• Communicate clearly about regional differences in coverage and costs
• Evaluate the full picture, not just premiums — an effective benefits strategy prioritizes whether every employee can actually use their benefits, not just managing cost

A PEO can help you maintain benefits strategy for your employees regardless of where they live.

How a PEO solves the geography problem

Managing employees, benefits and compliance across multiple states is a key challenge that PEOs help to solve. And while not all PEOs offer the same coverage at a national level, ADP TotalSource gives access to true national coverage and cohesive benefits programs built for employers to rely on so their people have benefits coverage regardless of the state they live in.

The PEO becomes the employer of record for tax and benefits purposes, allowing a business to access its Fortune 500-caliber benefit programs. This means businesses will receive:

• A benefits program for all employees across states
• Broad program with national and regional network access to support the specific needs of clients with more sustainable renewal costs
• Benefit administration, open enrollment, and employee questions handled for you across locations

Growing businesses interested in a PEO should search for a provider with 50-state coverage, as this will help to shore up compliance gaps and lower compliance risks, make employee benefits more equitable across the country and give the peace of mind that wherever you grow next, your employees are covered.

FAQs about PEOs and benefits

ADP Editorial Team The ADP editorial team is comprised of human resource professionals with extensive experience solving complex HR challenges for businesses of all sizes.