The U.S. represents a staggering 25% of the gross world product, and it remains the largest in terms of nominal GDP at $19.42 trillion. In light of these numbers, it’s easy to see why a company would want to expand to the U.S. However, how you support that expansion in terms of setting up a legal entity, hiring staff, taxes, employee benefits and redundancy can be complex.
1. Establishing a Legal Entity
To legally employ and pay workers, businesses must set up a subsidiary company, or legal entity within the U.S., and this typically takes two to three months. Companies are also required to open a U.S. bank account, which generally takes four to six weeks. A Federal Tax ID number, or Employer Identification Number (EIN), must also be acquired. This allows you to hire employees and participate in other business-related activities, as well as allow the IRS to identify your company’s financial transactions. After this one-time process has been completed, companies receive what’s commonly referred to as “Articles of Incorporation.” However, organisations are also required to register their company in each state they wish to hire employees. Frequent in-person meetings, or the accumulation of a significant percentage of your firm’s revenue in certain states may also require you to register across multiple states. The process for establishment, as well as reporting and filing requirements, will vary by state.
There are three primary options for businesses looking to hire U.S. nationals as employees:
There are over 260 federal tax codes in the United States. Once you include state, county and city codes, this number leaps into the thousands. Employers will need to become familiar with the process in each state. You’ll be required to register with the department of revenue in each state you are engaging workers, as well as ancillary labour agencies, which can assist with state unemployment tax. State Unemployment Tax and Federal Unemployment Tax are employer burdens owed to the IRS. Each company will be given an individual rate based on a variety of factors, including longevity and experience as an employer. Consequently, companies that have recently formed will generally incur a higher rate compared with their more established counterparts. When you consider that employer taxes are due based on where the work is performed, and the employees’ taxes are owed based upon where they live, it soon becomes clear as to how the United States has earned its reputation as having one of the world’s most complex tax systems.
‘When you consider that employer taxes are due based on where the work is performed, and the employees’ taxes are owed based upon where they live, it soon becomes clear as to how the United States has earned its reputation as having one of the world’s most complex tax systems.’
When hiring employees, it’s important to ensure that all employment contracts adhere to both federal and state laws. There may also be a requirement to observe city laws, particularly when it comes to overtime. For example, California has approximately half a dozen overtime rules that must be observed, dependent on the type of employee. And in New York, employees working in an administrative or professional capacity and earning over $50,000 per year are exempt from overtime. Although the United States has a reputation for being “employer-friendly,” especially compared to other countries, ignoring regulations can often land employers in trouble, particularly when it comes to terminating employees. Each state has its own laws regarding termination, including requirements to pay compensation and other entitlements, as well as for claims related to discrimination.