Expanding Into the U.S. Staffing Market: What Recruitment Agencies Need to Know
When expanding your recruitment business to the U.S. there are lots of factors you should consider. We’ve been helping UK recruitment agencies conquer the lucrative U.S. staffing market for over 20 years now. Based on our experience, here are some common considerations to keep in mind.
1. Employer Burdens for Contractors
The most common engagement model for contractors is the employed model (W-2). W-2 refers to a worker who is either a permanent salaried worker or a contractor paid on an hourly rate. They are considered an employee of the business they are working for.
Unlike the common umbrella model in the UK/Europe, the employer usually takes on the additional costs of engagement of the worker. This includes insurance, benefits, taxes, and much more. It is not compliant to pass these costs through to the worker. Therefore, when operating in the U.S., it’s very important to negotiate margins that will account for these additional costs.
2. U.S. Overtime Laws
Non-exempt employees are only entitled to overtime. The federal laws in the U.S. on overtime state that any hours over 40 in a week are paid at 1.5x the standard rate. If you are placing contractors in the U.S., day rates are not compliant in the U.S. and can’t be offered. The reason for this is because they are paid hourly as they are contingent/temporary workers and are only being paid for the hours they work.
Several states have their own individual overtime legislation as well. It’s important to discuss whether your client wishes to pay overtime, and if not, it’s best to cap the worker’s hours.
3. Workers Compensation
Workers’ compensation (WC) is an employer responsibility and legally required n the U.S. Often, roles deemed to be “high risk” are paired with a workers’ compensation premium.
All U.S. employers are required to carry workers’ compensation insurance. If you use an employer of record like PGC, your workers will be employed by the EOR and covered under our workers' compensation policy.
If you are looking to engage workers who are not in a standard desk-based role or are working in an environment other than a standard office environment (e.g. a lab, a factory, outside sales, etc.), you can get in contact with us to submit a quote request.
Overall, if you are considering making placements in the U.S., you should consider which types of contractors you want to engage and the insurance requirements and risks that come along with these engagements.
4. Worker Misclassification
It’s very important to classify your engagements correctly to avoid worker misclassification. Misclassifying a W-2 worker can easily sink recruitment businesses operating in the U.S.
The state by state DOLs have variations of their own legislation along with federal and state case laws which are considered when assessing whether a subcontractor engagement is truly suited to an independent contractor or a W-2 employee.
The various classification factors and lack of clarity can make it difficult to navigate misclassification and mean each case has to be treated separately. If a misclassification does happen, the risk can be split with both the end client and client being potentially liable. Liability can require back-payment of taxes and benefits with penalties applied on top, plus reputational damage. In short, the differences between a subcontractor and a W-2 employee can be seen in how the work is completed and how the tax is withheld.
There are three main ways of engaging contingent workers in the U.S., W-2, Corp-to-Corp, and 1099. W-2 is the most common engagement model for contingent workers and is the most compliant. If you use an employer of record like PGC, it is simple to place W-2 workers quickly and compliantly in the U.S.
5. U.S. Worker Benefits and Requirements
It is a requirement to offer full-time workers affordable and accessible healthcare plans. When making engagements in the U.S., you should have a competitive benefits package to sell to candidates and attract talent. The right benefits package can give you a competitive advantage in recruiting situations, as workers generally want to go with an employer who is invested in their health and future. Healthcare plans are one of the more important factors for workers in the U.S. If you use an employer of record, like PGC you gain access to our benefits plans provided by a top three benefits/insurance company. which is the same as our offering to internal employees,
Each states worker requirements differ in the U.S., here are a few requirements you should be aware of within your recruitment agency:
Worker compensation requirements
Payment of state and federal unemployment taxes, if you are an agency that needs to encourage a worker to be a W-2 rather than an independent contractor.
Paid sick leave - currently, there are no federal legal requirements for paid sick leave in the U.S. However, it is mandatory in a number of key U.S. states, with additional states regularly adding legislation. Therefore, it is important to do your research in the state you are operating in.
Compliance with the Federal Family and Medical Leave Act (FMLA) - Companies that meet a certain threshold are subject to the FMLA, which requires unpaid sick leave. FMLA provides for up to 12 weeks of unpaid leave for certain medical situations for either the employee or a member of the employee's immediate family. In many instances paid leave may be substituted for unpaid FMLA leave.
Travel pay - contractors must be paid for time spent traveling for their role (i.e. not their normal daily commute but rather for a business trip). This is usually negotiated between the agency, client, and contractor and can be any rate from minimum wage or above. Travel pay will usually be as per the end clients policy, often recruitment agencies struggle to pass through travel pay as end clients typically do not see this as billable time.
Ready to Conquer the U.S. Staffing Market?
There is a lot to consider when entering the U.S. staffing market. You can easily avoid misconceptions by using an expert to compliantly engage your contractors rather than putting your business at risk.
Our mission is to make it as easy as possible for you to make contract placements anywhere in the U.S. and Canada. As we are an employer of record, we take on the employment compliance and responsibility of engaging and managing contract workers so you can concentrate on building your business. We are here to help if you want to find out more about navigating the U.S. staffing market.
Disclaimer: The information provided here does not, and is not intended to, constitute legal advice. Instead, the information and content available are for general informational purposes only.