The United States of America has the largest economy in the world. Known for its business friendly laws, the US is home to major tech companies like Apple, Google, and Meta, as well as Fortune 500 companies, major banks, Hollywood, and some of the world’s best universities. The country is a leader in a number of industries, including media, sports, tech, and finance.
The US is a complex country, not only on the federal level, but on the state level. You will need to not only research and understand federal labor and tax laws, but also develop a strong understanding of the state you plan to operate in. That’s why partnering with an EOR service like Via that already has local experts on employment laws in the US as well as established entities can be a good solution.
This article acts as a guide for what employers need to know about PEO and employer-of-record services in the United States, as well as what compensation and benefit packages employers must offer their employees.
An employer of record (EOR) in the US allows companies without a local entity to hire full-time workers in minutes. An EOR acts as the legal employer and helps handle all compliance.
Manage payroll, employment contracts, and statutory benefits
Navigate payroll taxes and other HR processes
Support full-time workers across the entire employee lifecycle, from onboarding to offboarding
Sponsor work visas & permits
Save thousands of dollars and countless hours of valuable time
Sometimes, employer-of-record services are confused with PEOs. Many businesses use the terms interchangeably, but in the US there is a key legal difference.
Your hires are still your employees
You still need a legal entity in the US
You still have legal responsibilities in case of compliance issues
Think about it like this: a PEO is a partner to which you outsource part of your administrative HR processes, while an EOR is a partner that handles all of the HR process and takes care of your legal and compliance obligations when hiring abroad in the US.
Setting up an entity in the US can take months, since it requires a nuanced understanding of labor laws and best hiring practices. For this reason, many companies choose to partner with an EOR service like Via to expedite the process of hiring talent in the United States.
Capital city: Washington D.C.
Largest city by population: New York City
Currency: US Dollar (USD)
Population: 329.5 million
US GDP: 20.84 trillion
Payroll frequency: Bi-weekly or monthly
Federal Minimum wage: $7.25 per hour
There are no statutory federal requirements to pay employees for time off in the United States. However, most employers choose to compensate their employees with paid time off on an accrued basis for time worked at a company.
In the United States, there are 10 federally recognized public holidays:
New Year’s Day
Martin Luther King Day
Columbus Day/Indigenous Peoples' Day
The Federal Fair Labor Standards Act does not require that employers pay their employees for these 10 holidays. Most employers choose to both pay employees and give them these federal holidays off.
Some employers also recognize additional holidays, such as Juneteenth.
Although there is no mandatory sick leave for employees, most employers choose to give their employees accrued sick days based on the collective agreement between employer and employee.
The Family Medical Leave Act also provides certain employees with up to 12 weeks of unpaid, job-protected leave per year. Employers are required to keep employee’s benefits as well as hold their job.
Many states will have additional family, maternity, paternity, and parental leave requirements that work alongside the FMLA.
There is no statutory maternity leave in the United States. However, most employers opt to give their employees paid maternity leave. The details of the leave will be agreed upon in the employment contact.
There is no statutory paternity leave in the United States. Most employers will give new father’s paid paternity leave based on the collective agreement put into place upon hiring. In the US, paid paternity leave can range anywhere from 5 days to a couple of months, depending on the company.
With the passage of the FMLA, qualifying employees are guaranteed 12 weeks of paid parental leave. This provides paid leave for either the birth of a child, adoption, or helping with foster care placement.
Although other forms of leave are not statutorily guaranteed, most employers will give their employees other leave with notice. Some examples of paid leave are: marriage leave, jury duty, bereavement leave, and caring for a sick or injured family member.
Payroll taxes in the United States vary based on the employee’s base salary and annual income. Social security contributions are the same for both employer and employee.
Employers and employees both pay 6.2% of an employee’s salary into social security and 1.45% for medicare. This is a total contribution of 7.65% for both employer and employee.
In the United States, there is a flat rate of 21% that corporations are obligated to pay when calculating their payroll each year.
In addition to federal withholding, states will also have a withholding tax on the state level. The state tax will vary based on where you work and live. Some states, like Texas, do not have income taxes.
Some cities and areas have local taxes that are deducted from an employee's paycheck. This money usually goes towards public transportation and emergency services.
The United States has 7 different tax brackets for income tax. These withholdings will depend on the employee’s salary.
The withholding tax brackets in the United States are:
10% for $0-$10,275
12% for $10,275-$41,775
22% for $41,775-$89,075
24% for $89,075-$170,050
32% for $170,050-$215,950
35% for $215,950-$539,900
37% for $539,900 and above
The Americans with Disabilities Act
The Age Discrimination in Employment Act
The Equal Pay Act
The Fair Labor Standards Act
The Family and Medical Leave Act
In the United States, all employment is considered at-will, which means employers and employees have the ability to terminate employment at any time without notice. However, because of this at-will system put into place, employers should try to have strong employment contracts in place that help protect not only themselves, but their employees.
The gig-economy system has been on the rise in the United States, especially following the COVID-19 pandemic. Examples of gig-economy jobs are: Uber, Lyft, Instacart, freelance, and independent contractors. Although the rise of the gig-economy system has many benefits like allowing workers to set their own schedule and working from where they want, it has made it much easier for employers to not provide employees with health insurance and other benefits.
As an employer in the United States, it is crucial to make sure that you are correctly classifying your employees, especially if they are doing the work of a full-time employee. Fair pay rewards your employees and reduces the likelihood of future litigation for improper classification.
Most importantly, consider what benefits like medical insurance and vacation time that you want to give your employees and how this will help you as a business attract top talent. If you set the bar too low because of the lax compensation and benefit regulations in the United States, you will have a harder time attracting and retaining great employees.
There are no statutory probation periods in the United States. However, most employers will agree upon a probation period in the employment contract for new employees. Typical probation periods in the US are 3-6 months, depending on the job.
The standard work week in the US is Monday-Friday at 40 hours per week for full-time employees. Part-time employees are classified as anyone who works less than 30 hours. Part-time employees are not entitled to medical benefits.
Anything over 40 working hours in 1 week is considered overtime in the United States. Hourly employees must be paid time-and-a-half after they work more than 40 hours in 1 week.
Employers are not required to pay employees overtime pay for working on Saturdays, Sundays, or holidays unless they are already at 40 hours for the week.
The FLSA allows for executive, administrative, professional and outside sales employees to not be paid overtime as long as their minimum salary qualifies for exemption.
When dismissing a worker, employers are regulated by the federal, state, and city regulations of their jurisdiction. Some places will give penalties if termination isn’t processed correctly.
Some examples of termination procedures employers should keep in mind are:
Employee notice for termination
Processing final pay
Ensuring employee’s COBRA benefit is processed
Not all states will have the same penalties for termination, so being aware of individual state laws is crucial during the process.
As employees are at-will in the United States, there is no federal law about how much of a notice period to give employees. Both parties are able to terminate the employment without any notice.
However, in mass dismissal cases, the employer must give 60-days notice to their employees.
There is no statutory requirement for severance pay in the US. Severance pay is stipulated in the employment contract and agreed upon by employee and employer.
Opening a subsidiary in the US requires you to pay employees internally and have your own HR team. Both of these steps will be time consuming and require a large amount of resources, since you will need on-the-ground experts who can assist with opening a new bank account, finding an office, and registering with the correct local government institutions.
For this reason, companies looking to hire local American talent quickly can streamline the process by partnering with an EOR service like Via that already has an established entity in the US. An employer of record can handle all of the responsibilities that come with expansion.
For companies that want to build a large team in the US and have the time to open their own entities, using a PEO service is one option.
PEO companies act as co-employers and manage the HR process. The co-employment model means the parent company is still held liable for compliance, including issues related to termination or immigration.
The PEO service usually passes complex problems related to termination or immigration over to the parent company.
When using an EOR service like Via, you do not need to open a US-based bank account or register with local government bodies. We take care of onboarding employees, making payments in US dollars, and ensuring you are compliant in all labor and tax laws.
EOR services help major corporations looking to scale up operations in the US, as well as scaling startups, SMBs, and other entrepreneur-led businesses.
Hiring talented employees in the United States can be challenging without using a global PEO or EOR service that manages the human resources process.
Becoming a legal employer in the US requires you to have a strong legal team and in-depth knowledge about labor laws to hire foreign employees, as well as understanding employment contracts. Because the US has many different state and local laws, you will need to do extensive research about state laws as well. To maintain compliance with benefits and payroll, you will need to hire an outsourced payroll service or build your own HR team after establishing a subsidiary or entity.
For companies who hope to hire a large number of US employees, opening an entity with an HR team is a logical step on the road to global expansion. Most of the time, however, using a global third-party EOR service like Via is the smartest and easiest decision.
Whether you plan to expand globally or need to hire employees in the United States, Via makes the hiring process easy. We can work on your behalf as both your employer-of-record in the US if you’re based abroad, or as your employer-of-record in a new country if you’re based in the US.
Via helps you manage local HR processes for direct employment such as work visas & permits, benefits, payroll, background checks, and more. Our team of local labor lawyers and on-the-ground experts ensure that your company remains compliant while expanding abroad. As your employer-or-record/entity, Via assumes responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
With Via’s transparent pricing, you can pay full-time employees or contractors both in the US and internationally, with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.