How to Guide for a UK Company Employing Staff in the USA
Watch Now : How to Guide for a UK Company Employing Staff in the USA
As a UK company employing staff in USA the US employment landscape can seem intimidating due to different employment laws per state. To employ staff in the USA, you have two options. You can set up an entity in the US or partner with an Employer of Record USA.
This guide covers what a UK company employing staff in USA for the first time needs to know to simplify the process.
Option 1: Set up a Foreign Entity in the US
If you are a UK company employing staff in the USA, you will need to have the ability to legally engage with them. As employment law differs on a state and federal level, it’s important to be aware of the regulations in the area you are hiring in.
US law requires your company to be set-up and compliant in a number of areas before employing anybody. By setting up a foreign entity in your chosen state, it gives you as a UK company employing staff in USA the autonomy to hire staff and run payroll in compliance with local employment laws. Your options for establishing a presence in the US include forming a subsidiary or partnering with a local entity. If you have long term plans to create a sizeable team in the US setting up an entity may be a wise long-term approach to establish your business in the US. If you’re not sure exactly what you should be researching, this US market research checklist will help you out.
Our 6 steps to open a business in the US from UK blog goes into detail on the structures to choose from when registering your US business, the state to register in, securing an employer identification number and opening a US bank account. As a UK company employing staff in the USA, be careful on what business activities you complete in the US from the UK as some can trigger a permanent establishment.
Option 2: Use an Employer of Record to Employ Staff in USA
If you are a UK company employing staff in the USA, the streamlined approach would be using an Employer of Record specialized in the USA market. If you use an Employer of Record, they become the legal employer of your US staff and complex payroll tax deductions and worker insurances per state are made simple. If you employ staff in the USA alone, you must understand federal, state and local employment laws in each area you are hiring in. In addition to being aware of what makes up a competitive package in terms of average salaries and employer sponsored healthcare and insurance plans.
As an Employer of Record, PGC process your US staff’s payroll, insurances and employment benefit plans compliantly in accordance with the employment law in the area you are hiring in. This helps you mitigate risk and remain compliant. Even if you only hire one member of staff in the USA or an entire team throughout, you can access all our employer sponsored benefits without a minimum number of employees. Including medical and life insurance, 401(k) & IRA, Vision, and Dental plans.
UK companies employing staffing in USA for the first time often use an Employer of Record to test out the market while reducing the financial costs and risks of US expansion. Over time, once the business becomes confident with the US market and employment regulations, they can set up their own entity and HR team to employ their US team.
Find out more about using an Employer of Record USA to employ your staff in the USA in our frequently asked questions. Otherwise keep reading to find out what you need to know when employing staff in the USA.
Management of Employment Taxation in US
The management of taxation in US can be intimidating to a UK company employing staff in USA. It's important to research the state you plan to operate in due to the complexity of taxation in US from there being fifty separate states all with different tax laws. If you decide to employ staff in the USA under your own entity instead of using an employer of record, you must be equipped to manage your US employment taxes in the areas you hire in. You will need to determine if any local taxes apply to your employees. You will also need to ensure compliance in filing tax returns, making tax payments, and providing tax forms to employees as required by law.
There is various employment taxes that are due in different states, as well as in the municipalities within the cities. Taxes to understand and adhere to when employing staff in the USA include:
Payroll taxes
Social security taxes
Medicare taxes
401(k) contribution taxes
Compliance With US Employment Law
As a UK company employing staff in USA, it is crucial to be aware of US compliance and employment laws. The US has various employment laws that are vastly different from a lot of other countries. There are three layers of laws you must comply with employing staff in the USA, as explained in the video below.
An example is that is common in a lot of countries to offer a termination notice, unlike the US, where you can essentially terminate your workforce without notice due to “at-will” employment.
As a UK company employing staff in the USA, here are some US employment laws may surprise you as a UK company hiring staff in the US:
Right to an Employment Contract
In the US: There is no legal right to an employment contract. Instead, US employees often receive offer letters that outline job responsibilities, their salary, employer benefits, and the terms of employment. Most US employers state clearly that employment is at-will.
In the UK: All employees must be provided with a written statement setting out the main contractual terms and conditions on or before their first day of work. Notice periods are typically 1 month + after the probation period, increasing depending on seniority.
There can be strict regulations around how to properly handle a termination in the US, with discrimination always a factor to consider. In the US, legitimate reasons for terminating an employee include poor performance, misconduct, or the elimination of a job role. As a UK company employing staff in the USA, you should document performance issues and misconduct clearly to avoid wrongful termination claims.
2. Annual Leave Entitlement in the US
In the UK: A minimum entitlement of 5.6 weeks or 28 days for full-time employees (pro-rated for part-time employees and can include bank or public holidays).
In the US: There is no federal or state statutory minimum paid holiday leave. Paid leave is at the discretion of the employer.
Maternity leave in the US also varies widely depending on the state. There is no federal requirement for paid parental leave, though some states mandate it.
The Family and Medical Leave Act (FMLA) allows eligible employees at companies with 50 or more employees to take up to 12 weeks of unpaid, job-protected leave for childbirth, adoption, or serious health conditions. Some states and employers offer more generous maternity leave benefits, and it is crucial as a UK company employing staff in the USA to document and communicate their maternity leave policies in employee handbooks.
For more information on maternity leave requirements, you’ll need to know as a UK company hiring employees in the USA, read more here.
3. Employment Sponsored Healthcare Requirements in the US
In the UK: Most people don't have private healthcare insurance and are happy to rely on the National Health Service (NHS), which is funded through taxes.
In the US: It should be provided by employers of 50+ employees.
Offering competitive employee benefits, especially healthcare, is crucial as a UK company employing staff in the USA. Under the Affordable Care Act (ACA), employers with 50 or more full-time employees must provide health insurance that meets minimum essential coverage requirements. For more details on the ACA's requirements, visit the ACA minimum coverage page.
4. Paid Sick Leave in the US
In the UK: Employees are entitled to Statutory Sick Pay (SSP) for up to 28 weeks. SSP is paid by you as the employer and provides a basic level of income during illness, offering employees a safety net without significant financial worry.
In the US: Paid sick leave varies significantly by state and employer. There is no federal mandate for paid sick leave, meaning it is largely at the employer's discretion unless state laws you operate in dictate otherwise.
For example, in some states like California and New York require employers to provide paid sick leave, but many states do not have such requirements. If you would like to learn more as a UK Company Employing Staff in the USA make sure to check out this section on our website.
Business Insurance in US When Employing Staff
Often a UK company employing staff in the USA ensures they have the correct business insurance in the US in place to engage workers and limit liability risks.
The two business insurances in the US you’ll want to consider are:
General Liability (GL) Insurances
General liability is an insurance type that covers your general business practices and the errors and omissions of your workforce, from a third-party claim.
Professional Indemnity (PI) Insurances
Another type of business insurance in the US is Professional indemnity (PI) coverage. Professional indemnity acts like a safety net for your business as you employ staff in the US. It's a type of business insurance in the US that kicks in if an employee claims they lost money because of mistakes or oversights in the professional services you provide. In other words a back up plan.
Depending on what you do, it might go by different names, like errors and omissions (E&O) insurance in real estate, professional liability insurance (PLI) in construction, or malpractice insurance in medicine and law.
Worker Compensation in US
Most employers are legally required to have Worker Compensation in US as part of their business insurance in US. This coverage is crucial because it provides financial protection for both employers and employees in case of work-related injuries or illnesses. If an employee gets injured on the job, Worker Compensation in US helps cover their medical expenses and provides compensation for lost wages while they recover.
When obtaining Worker Compensation, different industries are assigned specific classification codes. These codes are based on various factors such as:
The nature of the work
The type of industry
The perceived level of risk associated with the job.
For example, construction workers may have a different classification code than office workers due to the higher risk of injury in their line of work. Finding the right worker compensation in US coverage can sometimes be challenging, especially for businesses operating in multiple states. If you're unable to find an insurance carrier willing to provide coverage nationwide, you may need to work with an insurance broker to navigate the complexities of obtaining coverage state by state. An experienced insurance broker can help you find an insurance company that is willing to write you a policy in each state where your business operates, ensuring that you remain compliant with state laws and regulations regarding workers’ compensation.
Annual Leave Entitlements When Employing Staff in the USA
When employing staff in the USA, it is important to be aware of annual leave entitlements before hiring staff. Annual leave is know as paid time off (PTO) in the US. UK employees are legally entitled to at least 5.6 weeks of paid holiday leave (including public holidays) under employment law.
In the US, it is not a legal requirement to offer holidays to employees, instead, it is commonplace to offer it as a perk to attract talent.
As a UK company hiring staff in the USA you must also be aware that paid time off is not the only factor that differs from the UK. Communication style and employee break allowance all differ greatly from state to state.
Be Aware of Different Salaries and Work Cultures Per State
As a UK company employing staff in the USA, it’s vital to be aware of the differences in salaries and work culture in the US compared with the UK.
As it is easy to assume that the US is similar culturally to the UK. Differences such as employee benefits, paid time off, salary expectations, and communication styles are just a few of the many differences you should be aware of. If you’d like to know what to be aware of as a UK company employing staff in the US make sure to check out this blog.
How a UK Company Employing Staff in USA can Payroll Staff
Managing payroll compliantly as a UK company hiring staff in the USA can be one of the most daunting tasks for companies hiring in the US. The variation in mandatory payroll taxes and contributions across different states poses significant compliance challenges. Especially for UK-based companies unfamiliar with local and state regulations.
Steps to Take if You Payroll USA Staff Alone
Payrolling staff in the USA can be quite a complicated process if you are unfamiliar with the market. There are a lot of important requirements your business will need to set up to get payroll running in the US if you choose to do it alone.
This includes:
Registering for an Employer Identification Number (EIN)
Registering your business for payroll in each state your hiring US employees
Enrolling your company in the Electronic Federal Tax Payment System (EFTPS) which keeps track of your fillings
Reviewing and approving employee hours workers
Calculating your employee’s gross pay including any applicable overtime
Calculating and withholding income taxes according to the IRS
Working out other legally required salary deductions - social security taxes, 401(k) contributions, health benefits, federal unemployment tax, etc.
Paying US employees on time to the correct schedule
Submitting year-end payroll tax reports
Ensuring accurate withholdings is crucial to avoid fines and maintain the reputation of your business in local markets.
Timely payments to your team not only reduce employee turnover but also foster a cohesive and committed workforce. You can find out detailed information on how payroll works in the US in our guide. Many UK companies hiring staff in the USA opt to collaborate with local legal experts familiar with payroll and tax regulations to mitigate the risk of noncompliance penalties, such as fines and restricted business opportunities.
The video below explains the payroll process in the USA and why many UK companies employing staff in the USA use an Employer of Record to simplify the process.
Are You the Next UK Company Employing Staff in the USA We Help?
The time, obvious costs, and potential risk of managing any of the above functions incorrectly means many UK companies hiring staff in the USA seek assistance to expertly guide them through this process.
A Employer of Record USA solution like that of PGC enables your company to employ staff in the USA. This removes your need as the employer to manage the above functions.
By outsourcing the employment factors to PGC, you can rest assured that compliance in employment is taken care of, resulting in a cost-effective way to manage your global workforce.
If you would like to discuss the above in more detail or are ready to employ staff in the USA, to reach out to a US Expansion Consultant.
Disclaimer: All information written here is for general informational purposes only and is not intended to be a substitute for professional and/or legal services.