The four factors are applied strictly in sequence, not weighed against each other: you stop at the first factor that assigns the employee's entire service to a single state, and ALL of that employee's wages - including work performed in other states - are then reported to that one state. The test is not a proration rule; an employee's wages are reported to exactly one state at a time. The framework comes from the definition of 'employment' in the model state UI statute that virtually every state adopted after the Social Security Act of 1935, and states resolve residual cases through the model Unemployment Compensation Interstate Reciprocal Coverage Arrangement, which lets an employer elect a single covering state for a multistate worker with the consent of the employee and the participating states. Nearly all states, DC, Puerto Rico and the Virgin Islands participate. Note that the localization test governs UNEMPLOYMENT INSURANCE only - state income tax withholding, workers' compensation situs and paid-leave program coverage follow separate and sometimes conflicting rules.
The four factors, applied in order
You do not weigh these. You apply them sequentially and stop at the first one that produces an answer.
1. Localization
Test: Is the employee's service performed entirely within one state, or performed in that state with only incidental service outside it?
Ask first whether all of the work happens in a single state. Work done elsewhere still counts as localized if it is incidental - temporary, isolated or transitory assignments such as an occasional client visit or conference. For a fully remote employee who works from home in one state and never travels for work, the analysis usually stops here: their wages are reported to the state they sit in, not the state where the company is headquartered.
2. Base of operations
Test: If the work is not localized in any one state, is some of the service performed in the state that contains the employee's base of operations?
The base of operations is the fixed, more-or-less permanent place from which the employee starts work and to which they customarily return for instructions, communications, supplies, or to maintain business records. A traveling salesperson's home office, or a technician's assigned depot, is a base of operations. You only reach this step for genuinely multistate workers, and the employee must perform at least some service in that state for it to control.
3. Place of direction or control
Test: If there is no base of operations, or no service is performed there, is some of the service performed in the state from which the employee's work is directed or controlled?
This means the place where the basic authority over the employee's work exists and from which general control emanates - typically a company headquarters or regional office - not the location of a field supervisor who merely relays instructions. Again, the employee must perform at least some service in that state for it to apply. This step is what causes many multistate roles to be reported to the employer's home-office state.
4. Residence of the employee
Test: If none of the first three factors resolve the question, is some of the service performed in the state where the employee resides?
The final fallback assigns coverage to the employee's state of residence, but only if the employee actually performs some work there. If no single state can be assigned even after this step, the employer may elect coverage under the model Interstate Reciprocal Coverage Arrangement in a state where some service is performed, where the employee lives, or where the employer maintains a place of business.
What this means for a remote employee
An employee who works entirely from home in one state is localized in that state, even where the employer has no other presence there and even where the employee's manager, systems and colleagues are all somewhere else. Factor one resolves it, and factors two through four are never reached. That is why hiring a single remote employee in a new state creates a real SUI registration obligation in that state, not merely a bookkeeping preference.
Sources
oui.doleta.gov · oui.doleta.gov · oui.doleta.gov