How to use an Employer of Record in the United States

World-leading innovations in science, technology, and the arts, combined with a skilled, remote-friendly workforce, make the US one of the most desirable locations to expand in.

However, employment in the US is regulated by both federal and state governments. That means you’ll still need to do your due diligence to ensure you remain compliant with the country’s labor laws, as they vary significantly from state to state. Moreover, to hire workers in the US, you’ll have to open your own entity and take on the legal responsibilities of hiring and paying employees.

That is, unless you decide to partner with an employer of record (EOR) in the US.

An employer of record is a service that allows you to hire and onboard international talent without having to spend time and money to establish a legal entity within the country. Using an employer of record in the US will also ensure that your new employees are paid on time and in accordance with the country’s labor laws.

Read on to learn more about how to use an EOR in the US, so you can start sourcing talent from the country.

6 steps for choosing an employer of record in the US

An employer of record is especially useful if you don’t have the resources or budget to form your own legal entity within the US. However, not all EOR providers operate the same way, and each EOR offers a different suite of services. It’s essential to do some research to figure out the solution that works for your business needs.

So, how do you go about choosing an employer of record in the US? Here are six simple steps to follow when choosing a partner:

Step 1: Create a list that outlines exactly what you are looking for in an employer of record in the US. Then, do your research and make a list of all the EOR providers that match those needs. Compare the pros and cons of each provider to shorten the list as much as possible.

Step 2: While researching potential EOR partners, make sure you select a service that owns its own legal entity within the US, rather than one that depends on third-party providers. Our helpful guide can explain the difference between owned-entity and partner-dependent providers.

Step 3: Read reviews, testimonials, and other press coverage about your shortlisted partners to see what clients are saying about their experience. Finding out more about other customers' interactions with the EOR provider can reveal insights into the kind of service you can expect.

Step 4: Double-check to ensure that the employer of record service you are considering can and will provide a first-class employee experience for your US hires. Some questions you could ask include the following:

• How do you pay employees quickly and compliantly?

• Are you responsive when it comes to employee inquiries?

• How do you demonstrate a commitment to employee satisfaction?

Step 5: Review your potential partner’s security measures to ensure that they can safeguard your intellectual property and maintain data security for your business. You’ll need to ensure that your EOR protects your company and employee data and offers the best security and compliance measures.

Step 6: Once you’ve chosen an EOR partner, work with them to create a fair and equitable compensation package for all your US employees, while keeping local labor laws, and each employee’s experience, role, and skills in mind.

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Benefits of using an employer of record in the United States

There are several perks of using an employer of record in the US. Let’s take a look at a few of them.

The greatest (and most obvious) benefit of partnering with an EOR in the US is that you won’t have to spend your resources to open a legal business entity within the country. Partnering with an EOR service also means that you won’t have to worry about putting together a legal team or an HR department to handle US legislation or administrative tasks.

Another benefit of partnering with an EOR is that the provider will create employment contracts for you, specifically defining the terms of a worker’s employment and outlining all the legal requirements expected from all parties involved. Using an employment contract, while not a legal necessity in the US, goes a long way to ensuring you’re hiring compliantly from anywhere in the world.

Additionally, an employer of record can minimize the hassle of administrative and HR work involved in managing your US employees. For instance, an EOR can help you:

• View and manage your employees within a single platform

• Withhold taxes and file tax forms

• Pay your employees in the local currency

• Maintain compliance with employment law updates

How much does it cost to use an EOR in the United States?

Generally speaking, you can expect employer of record services in the US to cost you as little as $599 or exceed $2,000 per employee. However, it is important to keep in mind that these are highly variable amounts and your actual costs will depend entirely on your company’s needs as well as your US workers’ salaries.

EOR services often come with two kinds of pricing: flat-fee structures and percentage structures. It is not recommended to partner with an employer of record service that charges a percentage, as percentage-based structures cause companies to reduce their workers’ salaries to cover the cost of third-party providers.

You also want to avoid the “traditional” partners that only offer enterprise-level rates, as well as partners advertising suspiciously low rates. You will either end up stuck in an increasingly expensive contract, or you will lose out on compliance or security because the company cuts corners to keep costs low.

Remote offers an affordable flat-rate model for the US — while still offering the highest and strictest standards in legal compliance and security.

Hiring in the US

Labor laws and the standard workweek in the United States may be different from what you’re used to, depending on where your business is located.

The US workforce is governed by federal law via the US Department of Labor and individual state laws. As mentioned earlier, state laws regarding labor can vary significantly. State labor laws are where things become a bit cumbersome, as they govern everything from discrimination and harassment at the workplace to minimum wage and worker’s compensation.

It should be noted, however, that most states consider employment to be “at will.” That means employees have the right to quit without notice or severance, and the same goes for termination. If there is an employment contract in place, both parties will have to abide by its guidelines. Otherwise, you would fall back on a simple employment agreement.

To navigate the complexities of hiring in the US, and to stay compliant with US federal law, you can partner with a reliable employer of record to do the heavy lifting for you. When you work with an employer of record in the US, you’ll receive a complete team that acts as your business entity, legal counsel, and HR department.

Employment contracts and agreements in the US

According to US labor laws, employment contracts aren’t necessarily required for employment. However, they are typically offered for senior-level or specialist roles that have specific compensation and benefits requirements. It’s also not uncommon for contract workers and freelancers to present their own contracts that outline the scope of work, expected compensation and payment schedule, and so on.

If you're hiring an employee in the US, include the following information in the employment contract to ensure the contract is legally compliant with the country’s labor laws:

• Identification of the employer and employee

• The expectations and responsibilities of the employee in their role

• The starting date of employment and the end date (if applicable)

• The location of employment

• The expected working hours and agreed-upon schedule

• Salary and statutory benefits, including severance

• Notice periods, probation, and standard procedures for termination.

You should always get a legal expert to review your contract to ensure it’s compliant. Look for someone who’s familiar with the labor laws of the area you’re hiring in.

Labor law compliance in the US

The US Department of Labor governs the federal terms and conditions of employment in the country. This includes standard working hours, wages, holidays, statutory benefits, codes of conduct, and more. State laws are typically what govern things like minimum wage, fair compensation, anti-discrimination, the right to unpaid medical leave, and so on.

As an employer, you’ll need to be aware of all these unique considerations if you want to keep up with the country’s labor laws. When you work with an employer of record in the United States, you can depend on them to stay current with all the labor laws — new and old — to ensure you remain informed and compliant.

Employee rights

Under the Fair Labor Standards Act (FLSA), all American employees have certain distinct rights. Those rights include the safeguarding of employees from discrimination based on gender, race, age, or religion. It also safeguards their right to privacy and fair remuneration.

Additionally, employees in the US have the right to refuse “alternative jobs.” That means employers cannot force an employee to perform duties outside of their defined roles. It also means that employers cannot retaliate if an employee refuses to take on extra responsibilities outside their scope of work. However, employers can offer alternative jobs as long as they follow certain rules, such as offering the new job in writing and making an offer for the new job before the employee’s current job ends.

Working hours

The standard work week for full-time employees is 40 hours, although it’s not uncommon for workers to work beyond these hours, with or without overtime. Exceptions include airline staff, nurses, and long-haul cargo drivers.

Federal holidays

US citizens observe several federal holidays throughout the year. However, not all of them account for paid time off — or even time off without pay. Keep in mind that employment contracts and agreements should acknowledge and honor US work culture, public holidays, the standard workweek, benefits, and more.

The federal holidays in the US are as follows:

Payroll and payroll taxes in the US

There is a very specific set of rules for payroll and taxation in the US, but these rules vary depending on the state of incorporation and business operations. As a foreign employer, your primary concerns related to staying compliant with US tax law are:

• Accurate reporting of federal and state income tax for all employees

• Social Security and Medicare costs

• Payroll taxes

• Sales tax

• Withholding tax

• Corporate tax

• Potential state and federal unemployment insurance

• Worker’s compensation funds.

Additionally, to comply with federal and state tax requirements, payroll tax must be registered in the state where the employee lives. To register, you need to obtain an Employer Identification Number (EIN).

An EOR can handle social security contributions, income taxes, statutory benefits, and payment management so that you can ensure that your employees are paid appropriately and on time.

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When it comes to negotiating the terms of employment with a potential employee in the US, you will want to keep in mind any legal requirements regarding compensation and statutory benefits.

You can use our Global Compensation Guide to determine a fair and competitive compensation plan for your remote employees based in the US.

Employee benefits in the US

It should be noted that in the US, typical benefits such as vacation time, maternity leave, health insurance, etc. aren't legally required. However, it’s standard practice to offer them.

Vacation time

US citizens are entitled to up to 12 weeks of unpaid vacation time. Since there is no federal law regulating minimum paid vacation time, it’s left up to the state. Having said that, the standard is 10 to 12 days of paid vacation time.

If you want to remain competitive, however, it’s a good idea to offer any potential US candidates more than the “standard” vacation time.

Maternity leave

The Family and Medical Leave Act (FMLA) entitles eligible employees to up to 12 weeks in a 12-month period of job-protected, unpaid leave for specified family or medical reasons. As a foreign employer, the FMLA only applies to you if you’ve employed 50 or more US employees for at least 20 weeks of the year.

To remain competitive, it’s a good idea to offer potential US candidates job-protected, paid maternity leave.

Health insurance

Comprehensive health insurance coverage is one of the most important benefits you can offer an American employee, as there are no public healthcare systems currently in place outside of Medicaid — which is only available for citizens below a certain income threshold or above 65 years of age.

The Affordable Care Act (ACA) requires employers with 50 or more full-time US employees to provide at least 95% of their staff with health insurance. For each year that you don’t provide health coverage, you must pay a steep penalty of $3,960 per employee to the federal government.

Additional employee benefits

US employees are entitled to a pension. This is funded by workers’ compensation (which is covered by mandatory employer insurance) and government tax revenues.

As part of our global employment services, Remote can create a globally compliant and competitive compensation package that can help you attract and retain top talent in the US. This includes providing benefits for contractors as well.

You can learn more about the most relevant benefits for a US workforce in our benefits guide.

US severance pay and employee terminations

The FLSA does not legally require employers to pay their US employees severance pay upon notice or termination. However, many employers offer severance pay as part of their benefits package, which means that it is part of the documented employment agreement and, therefore, legally enforceable under contract. Severance amounts are typically based on the employee’s seniority or how long they worked for the company.

In the case of termination, you are not required to compensate employees for unused vacation time unless this was agreed upon before employment.

Keep in mind that most employment in the United States is considered “at will,” meaning that there’s no specification regarding a period of time during which employment is considered active. Therefore, barring an employment contract with specific terms, employees can give notice or simply quit for any reason at any time. Employers may also terminate employees in the same manner.

Employee vs independent contractor status in the US

The definition of employee and independent contractor varies from country to country. In the US, an employee is someone who is on a company’s payroll, receiving weekly wages and benefits in exchange for loyalty to a specific role. An independent contractor is someone who works for a company while maintaining full autonomy and flexibility and does not receive any sort of benefits.

Payroll and reporting are also handled differently among employees and independent contractors, which is why your workers must be classified appropriately using the proper documentation. If you misclassify your employees, you run the risk of having to pay penalties, fines, back wages, and benefits, and may be subject to lawsuits.

When you partner with a global HR platform like Remote, you won’t have to worry about worker misclassification because it is our job to ensure that you remain legally compliant in all aspects of your global hiring process.

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Partnering with the right EOR provider: Remote

Partnering with the right employer of record is essential to attracting and retaining top international talent. It’s also your only option for hiring internationally without having to form a legal business entity within the US — which requires a lot of time, money, and resources.

Here at Remote, we can take care of all your international hiring needs by acting as your HR department and legal team, ensuring that you stay compliant with US employment laws. We will also ensure that your intellectual property and other personal information is always safe and secure.

We will also be there to support your US employees at all times, ensuring that they always feel seen, heard, and valued. Remote’s global employment services can offer you:

• An entire HR department that can take care of hiring, onboarding, and all other management tasks.

• A global legal team that ensures you remain compliant with local labor laws.

• Administrative process solutions from taxes to payroll processing. This would also include providing the necessary visas and work permits where applicable.

• A platform that allows you to remain in control and in constant communication with your employees abroad.

• Top-level security for your intellectual property and personal information.

Learn more about how Remote can help you with your global hiring needs. Get started with Remote to hire and onboard US employees today!

Read Remote's expert guide to hiring in the US

Use our expert hiring guide for information on local benefits, taxation, and compliance requirements to help you employ in the US with ease.

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