January 21, 2022

What you need to know about US employment compliance

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If your company is planning to set up business operations in the United States for the first time, it’s important to be aware of the country’s complex employment laws before you get started. No matter where in the world your business is based, your U.S. location(s) will be subject to a number of federal employment laws, as well as applicable state and local laws. 

Federal vs. state compliance

All employers operating in the U.S. are required to comply with federal employment laws. Additionally, each U.S. state can opt to pass additional laws that hold companies doing business within their borders to even higher standards than what is required under federal law. Some states even have special requirements for certain municipalities or counties. 

  • Any state-specific compliance is based on the state(s) where your business is operating, regardless of where the business entity is registered.
  • Additionally, if your company employs people who work remotely, you’ll also have to comply with state and local requirements that apply to the place where they do their work.

For example, if your corporation or limited liability company (LLC) is registered in Delaware, but the business has an office in Florida, then you must comply with Florida employment laws. If you have remote employees who work in another state, you’ll also have to follow applicable employment laws for their home state when it comes to those individuals.

Wage and hour law factors

In the U.S., workers must be paid in a manner that complies with the Fair Labor Standards Act (FLSA), which is a wage and hour law. Beyond this federal law, most states also have additional wage and hour requirements: 

  • Minimum wage - The U.S. has a federal minimum wage that represents the least amount an employer can pay its employees. As of early 2022, it is $7.25 per hour. However, most states have a higher minimum wage, as does the District of Columbia.
  • Overtime - Federal law requires U.S. employers to pay overtime (OT) of at least 1.5 times their hourly rate to certain employees who work more than 40 hours in a workweek. In a few states, employers have to pay OT after eight hours in a day.   
  • Exempt/non-exempt - The FLSA OT requirement applies to employees who are non-exempt from overtime requirements. Some positions qualify as exempt from overtime if specific requirements are met

These are just a few of the many FLSA provisions and state-specific wage and hour concerns that U.S. employers need to be aware of and comply with. This aspect of compliance can significantly impact wage expenditures and payroll, but there are a number of other payroll matters you’ll need to be prepared to deal with as a U.S. employer. 

Payroll compliance considerations

Processing payroll and maintaining U.S. payroll records can be very complex, especially if your company has locations operating in more than one state or you have remote employees working in multiple states. Many states have unique payroll requirements — employers with employees in those states are responsible for complying with all such requirements. 

  • Federal income tax withholding - U.S. employers must withhold and file federal income taxes on behalf of all of their employees. 
  • Federal Insurance Contributions Act (FICA) filings - Employers must withhold and pay their portion of FICA taxes to the federal government via payroll. These contributions go to Social Security and Medicare; employees pay half and employers pay half. 
  • Unemployment compensation (UC) - Each state has its own UC program, so employers must set up UC accounts and properly file UC payments in each state. 
  • Benefits premiums - For employees who participate in workplace benefits, their portion of the premiums is collected via payroll deductions.

There are other important compliance obligations related to payroll, including several end-of-year tax filings. For example, employers must also provide employees with a W-9 statement of their annual earnings, which employees use to file their federal income taxes. Similar requirements apply where state income tax is required. 

Employment status and recordkeeping requirements

Various laws require employers to keep a record of each employee. Before a new employee can be added to the payroll, employers have to gather, organize, and store quite a bit of specific information. Employers must maintain certain employee records for active and terminated employees, as well as meet other key administrative requirements. 

  • Form I-9 - U.S. employers must verify each new employee’s identity and right to work in the country via Form I-9. Failure to properly complete and store these forms can result in fines and penalties.  
  • E-verify - Many employers are also required to use the federal government’s E-verify system in addition to Form I-9. Even for those who do not have to do so, using E-verify is considered to be a best practice.  
  • State payroll notifications - Some states require employers to notify state agencies via a specific form when an employee has been hired or terminated from employment.
  • Unemployment Compensation (UC) responses - After an employee leaves a company, the individual may file a UC claim in their state. If a claim is filed, the employer may have to respond or participate in a hearing. 

Equal Employment Opportunity compliance

Compliance concerns aren’t all related to properly paying employees and keeping appropriate records. In addition to applicable state and local laws, there are a number of federal laws focused on ensuring that everyone has equal employment opportunity (EEO), including but not limited to the Civil Rights Act (CRA), Americans With Disabilities Act (ADA), and Age Discrimination in Employment Act (ADEA). The EEO laws all prohibit workplace discrimination, including harassment, on the basis of one or more protected characteristics. Note that many states impose more stringent requirements than federal law. 

Employers cannot use information about the characteristics protected under any of the EEO laws to make employment decisions, such as (but not limited to) hiring, pay, promotion, access to training, and more. Further, employers are required to ensure that the workplace is free from both quid pro quo sexual harassment and hostile environment harassment. 

Making sense of leave laws 

U.S. leave laws also pose a unique challenge, some of which relate to a few of the EEO laws. Federal law does not require employers to provide employees with paid vacation, holidays, or sick leaves, but most employers do offer at least some paid time off. There are some situations in which federal law obligates employers to provide unpaid leave, like with the Family Medical Leave Act (FMLA). The FMLA requires covered employers to allow eligible employees up to 12 weeks of unpaid leave if they or an immediate family member experience a serious health condition, or if they become parents.

Many states also have sick leave laws, some of which do require a certain amount of paid sick leave. Some also have their own family medical leave requirements that are more strict than what is required under federal law.

Navigating the complexity of U.S. employment law

As you can see, there is a lot to consider in relation to U.S. employment law compliance. And this doesn’t even cover everything — for example, some states have specific compliance training requirements, and workers’ compensation coverage varies by state. That’s one reason why so many expanding companies decide to partner with an outsourced HR provider like Justworks. 

How Justworks can help

With Justworks, you're ready to begin operating in the U.S. and easily access helpful compliance support resources. As a Justworks user, a few of the advantages you can utilize include:

  • Access to technology-based HR tools for employee onboarding, recordkeeping, and tracking important business metrics related to the workforce. 
  • Automated direct deposit payroll processing that can be linked to time tracking and bookkeeping tools.  
  • Compliance support for payroll and tax compliance, as well as other key aspects of employment law relevant to your company and employees. 
  • Access to high-quality employee benefits that will allow your companies to compete for top talent with businesses that have long been established in the U.S. 

For an out-of-country company expanding into the U.S., there’s no better way to navigate the country’s complex, ever-changing employment laws. You’ll be able to hire, onboard, and pay employees correctly via the Justworks platform, and Justworks’ Customer Support team and HR consultants are only a phone call away. 

Special offer for Firstbase customers

It’s easy and affordable to join Justworks. As a Firstbase customer, you’re even eligible for two free months of Justworks admin fees. What are you waiting for? Click here to activate this exclusive offer. 

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