First, to pay payroll taxes to employees who live in different states, you have to jump through a bunch of hoops with each state’s government. For example, when we had an employee living in Colorado, we had to set up a business relationship with the state of Colorado - using a fax machine. They literally wouldn’t accept paperwork any other way - it had to be via fax. Later, when that employee moved to another state, we had to tear down our relationship with Colorado (or else keep paying business fees to Colorado), plus set up tax paperwork with the employee’s new state. All of this cost us time & money.
Second, health insurance was a lot more complex. We wanted to offer the best possible health insurance to all of our employees, but health insurance companies make that massively complicated, with various rules about where the majority of staff lived, where each person lived, which plans were available in which states, etc. If I could do it all over again, I probably would have just given each employee an allowance to use on their local state’s open health insurance market, but that’s a hot mess too.