With its huge economy and millions of highly skilled workers, the United States is an obvious choice for many multinational companies seeking to expand their global footprint.
But while the inexorable momentum of market forces drives many companies to expand into the US, it is important that they appreciate the legal framework of the country before they make their move.
For those outside the US, it can be easy to forget that the primary legal status of the country, as its name suggests, is that of a federal republic, or a federation of states.
In a federal system, the governing power is divided between the representative federal government and individual state governments. In the US, that means one federal government and 50 individual state governments (and the District of Colombia).
The division of powers in the US dates to 1791 when the Bill of Rights was added to the US Constitution. Over the past 230 years of American history, the delegation of powers flowing from the 10th Amendment has grown to encompass 51 distinct legal territories, each with its own corporate and civil laws. When it comes to doing business in the US, it can sometimes appear as if each of the 51 states and territories is, to all intents and purposes, its own independent country.
What does this mean for your business?
Businesses seeking to launch operations in another country face complex legal, human resources and compliance challenges in new markets. The Globalization Partners’ recent survey of CFOs found that regulatory/legal compliance (56 percent), tax structure (46 percent) and human capital/talent (38 percent) were the largest potential barriers to success. Navigating tax and accounting regulations, employment laws and standards can be a daunting prospect. Imagine that complexity multiplied 51 times for certain regulations and laws.
Companies coming to the US need to be aware of and comply with, a variety of interpretations of state registration, employment taxes, unemployment insurance, worker’s compensation insurance, state-specific employment laws and documentation.
In some cases, the cost to employ someone in one state will be higher than in others. Paid leave is a good example. There are no federal requirements to provide employees with paid leave, so individual states can ‘ and have ‘ enacted local legislation requiring minimum types of paid leave, such as paid vacation leave, paid sick leave, or paid parental leave. To add another layer of complexity, individual cities within states can ‘ and do ‘ enact their own paid leave policies.
Imagine a company with 10 employees in San Francisco, California and 10 in Austin, Texas. There is no requirement under Californian federal law to provide paid leave but California state law requires employers with even one employee in California to provide 24 hours of paid sick leave per year ‘ and to allow unused leave to carry over to a cap of 48 hours per year.
The state of Texas on the other hand, does not have a local paid sick leave requirement but the city of Austin does. It requires employers to provide one hour of sick leave for every 30 hours worked for employees, with a cap of up to 48 hours per year.
How can an Employer of Record help?
One way to overcome these complexities and make the decisions that best suit your business is to employ a third-party expert well-versed in the specific details surrounding federal and state employment, tax, and accounting regulations in the US.
Global hiring is easier and quicker with Globalization Partners’ Employer of Record solution which can help overcome the obvious challenges and identify potential hidden pitfalls. It can provide a wide range of benefits for companies expanding into the US, such as identifying the most suitable states in which to locate and in which to hire quickly.
Compliance with local laws is particularly relevant when it comes to the US because there is so much disparity between states and even between cities within states. For many companies that find keeping up with law and regulation in their own country of origin a full-time job, Globalization Partners’ global employment platform and team of HR experts on the ground with well-established legal capabilities and knowledge of local laws can provide an invaluable service.
By partnering with us, management are freed up to focus on expanding the company and avoid being distracted by rigorous and ever-changing compliance mandates. Our Employer of Record solution can ensure the rights and benefits packages offered are appropriate and in line with local state and federal regulations where appropriate, that new employees are on a locally compliant employment contract and that there is a compliant and time-sensitive payroll in place.
The right Employer of Record can help businesses focus much more quickly on building a market presence, partnerships, and a brand within a new territory, whether it’s for one country or across 50 states.