I think what’s going on is what they told you is going on: They looked into it and realized that letting an employee work from another state isn’t as easy as simply saying yes.
People often don’t realize that letting an employee work from a state where other employees aren’t already based has significant financial and legal ramifications. When you’re already remote, it’s easy to think, What difference does it make to the company whether I’m working ten miles away or across the country? I could move anywhere and keep doing the work I’m doing right now. In fact, as more and more companies went remote over the course of the pandemic, my inbox filled up with letters from people who wanted to do exactly that … and then, later, from people who did do exactly that but learned afterward, after they had already relocated, that their companies wouldn’t permit it. So, while frustrating, it’s better you found out now.
Here’s the reason, which a lot of people aren’t aware of: If an employer lets employees work from a different state, it creates what’s called nexus in the new state, and it may be required to pay taxes, set up workers’-comp insurance (which isn’t cheap), and even charge customers sales tax in that state. Those can be really significant expenses.
On top of that, the company will be required to follow the employment laws of that state. It can be a not-insignificant burden to monitor and comply with an additional state’s employment laws, particularly if they’re very different from the laws where the business is headquartered. California’s laws in particular happen to be a lot more complex and employee-friendly than many other states’. For example, if your job is classified as nonexempt (the government classifies every job in the U.S. as exempt or nonexempt), you’re required by law to be paid overtime when you work more than 40 hours in a week. In most states, that’s the end of the requirement. But in California, you also need to be paid overtime for any hours over eight that you work in a day — so there’s a whole different tracking requirement and a whole additional pay requirement. Moreover, if you’re exempt from overtime currently, you might not qualify to keep that exemption in California, which has more restrictive standards for that than federal law does. So your company could end up needing to track and pay your overtime when it doesn’t currently. California also treats vacation accrual and payout differently than many other states and requires that different information be provided on your pay stub (with monetary penalties for not complying) and a whole host of other differences.
To be clear, you wouldn’t see differences only with California; every state has its own set of laws that could differ from the ones governing your work now.
I suspect that what happened is that the managers who originally supported your plan to move didn’t know any of this — because a lot of people don’t. Once they looked into it, they realized the financial and legal consequences of okaying the move, and that’s why they’re backtracking now. They should have explained this to you in more detail so you weren’t left to assume something nefarious was afoot. But I’d bet money this is what occurred because it’s happened to so many other people in the past few years.
They’re also right that you can’t solve these issues by just working as a consultant instead of an employee. The federal government has strict rules about who qualifies as an independent contractor and who doesn’t, and your company can’t legally convert you into a contractor without changing fundamental things about how your job is structured. Letting you continue to work there full time in the same role and just calling you a contractor would open the company up to legal risk and fines. (It also wouldn’t withhold and pay payroll taxes for a contractor as it does for employees. You’d be responsible for paying those taxes yourself, so you’d take a financial hit unless the company paid you more.)
I also want to point out that in many states, even just working from there for a short time (as you did during your monthlong trial run) can trigger tax obligations for both the employee and the employer regardless of whether you’re a resident. In practice, a lot of employers turn a blind eye to that, and most states don’t pursue short-term working visitors, but it’s worth being aware of.
It’s natural to assume that working remotely means you can work from anywhere. It sounds as if your managers themselves didn’t realize the business implications until they looked into it more closely. But now that they know, it’s not unreasonable for them to conclude it doesn’t make sense for the business to take on all the expenses and administrative burden that would come with your relocation.