A Setup for Success: Establishing the Basics

When your business is ready to open its doors in the US, there are a few critical first steps that will ensure your business is legally compliant and prepared to support its workforce.

1. Opening a Bank Account: When establishing a workforce, you are going to need to pay them and properly pay payroll taxes. Setting up a US bank account is a critical first step. “You are going to need a US branch of an international bank or a local bank in the city and state where you’re setting up a business,” says Jenny.
2. Establishing a US address. Your business needs a location out of which to operate, to receive mail, and to maintain a professional presence. Your company may choose to open its own office space or even pursue rented office space in a co-working location. However, beware of using the address of your first US employee as your company address. While this may seem like a convenient option at first, Jenny advises this can be risky, especially if that employee leaves the company.
3. Start an Entity. Your business must establish a US entity, meaning the business is incorporated in the US as a distinct legal entity. This offers important advantages like liability protections, legal and tax benefits. Jenny suggests establishing the business as an LLC, one of the most popular tax frameworks. Delaware and Wyoming are two of the most popular states in which to incorporate your business, known for their business-friendly environments.
4. Apply for a FEIN. A distinguishing characteristic of your business is your FEIN (Federal Employer ID Number). Jenny’s advice? Don’t waste your money on services that will do this for you. You can easily apply for your FEIN for free at IRS.gov.
5. Set up your HRIS & Payroll System. Choosing an internal HRIS is an important business decision, as this system will pay your employees, securely store their data, remit required payments to the federal government and state agencies, and more. There are dozens of vendors to choose from, and making the best decision for your business can feel overwhelming. Check out Flex HRs comprehensive guidance on choosing the right HRIS system for your business.

Classifying your Labor Force

One of the most important – and also most challenging – aspects of establishing a US workforce is properly classifying your workers. The US classifies workers in two primary categories: W2 employees and 1099 Contractors. These classifications signal how the employees’ wages will be taxed and paid to the federal government each year.

• W2 Employee: W2 employees are paid wages directly by the employer, and the employer is responsible for properly taxing their wages and remitting those payments to the federal and state governments. The employer also handles paying unemployment insurance on behalf of the employee and will often offer the employee benefits and paid time. Employers should be aware of the federal and state requirements for offering employee benefits, specifically health insurance, to avoid costly penalties (more on that later!). Finally, W2 employees are typically offered a company laptop, signaling that the employee is doing work for the company while also offering data security protections.

 

• 1099 Contractor: A 1099 Contractor is in fact not an employee of a company, meaning the company pays the contractor, but the contractor is responsible for paying taxes on their earnings, and is not eligible for benefits or paid time off. A contractor may provide services to multiple organizations, not just one employer, and typically does their work using their own laptop, instead of receiving one from the company.

A business must decide how to set up their workforce, and many companies will hire a combination of employees and contractors. “There are different goals and aspirations in mind for an employee or for a contractor,” says Jenny, and considering these differences is important. Regardless of your approach, proper classification of your employees is critical, as misclassifying your workers is one of the easiest ways to incur significant penalties and fines for your business.

Understanding US Pay Regulations

Perhaps one of the most confusing aspects of establishing your workforce is understanding how to pay and tax your employees. This can vary greatly by state. As Jenny shares, “We have very different HR and payroll laws within different states,” with each state effectively operating like a different country. This is one of the most common practices on which Flex HR provides guidance, ensuring your business is set up to be compliant, your employees paid, benefits deducted, required taxes paid, and that the nuances of each state in which you operate are accounted for. Flex HR can handle this for you, too!

 

Understanding US Benefit Regulations

The United States requires that employers offer certain benefits to its W2 employees. Some of the most important are:

• Worker’s compensation: In most states, employers are required to carry workers’ compensation insurance for their employees. The amount varies depending on company size and is typically provided by a broker.
• Health Insurance: Employers are required to provide healthcare coverage for companies with over 50 employees.
• Unemployment Insurance: Unemployment insurance is required and is set up for each state in which you have employees.

There are several other laws, including leave laws, COBRA, and more that will vary depending on company size and state. It is critical to understand the laws and regulations for each state in which you operate, as well as federally. Remaining compliant with these laws will protect you from costly penalties.

 

The Importance of a Comprehensive Employee Handbook

The employee handbook allows an organization to put its policies, procedures, values, and more into a comprehensive handbook that can be easily accessed and reviewed by every employee. It allows employers to ensure both the company, and the employee are held accountable to the expectations set forth in the handbook.

Some of the policies that might be included in a handbook are the confidentiality agreement, a data security policy, a PTO policy, and anti-harassment policies. An employee handbook can provide instructions on how to handle questions or concerns, like outlining the process for filing grievance or the process for requesting PTO. The handbook is a great place to illustrate the particulars of the organizational structure, highlighting internal departments, their leaders, and what each team oversees.

A well-written employee handbook can go a long way in enhancing the image of an employer who is new to operating in the US. It builds trust with employees and presents the organization as one that understands the importance of consistent policies and procedures. “You are looking incredibly professional when you have that employee handbook ready to go,” says Jenny.

Entering the US labor market as an international employer is an understandably overwhelming experience!  If you want to learn more about how to prepare your organization for such a move, you can watch our webinar on demand, where Flex HR CEO, Jenny Morehead, guides you through the most important aspects of establishing your company as a US employer. Would your team benefit from personalized HR support as you begin this exciting journey? Flex HR’s team of experts is ready to help.

Reach out today to learn more about Flex HR’s customized HR offerings.