With a GDP of 24.8 trillion USD, the United States of America is the world’s largest economy. Therefore, companies in the US have a vital advantage, both in terms of expansion and innovation.
As a recognized leader in R&D with a talented workforce, relative ease of doing business, access to capital, and an abundance of natural resources, the USA offers one of the most business-friendly environments. Besides, its expansive infrastructure network, quality of living, and transparent legal system make it a profitable and premier destination for companies to thrive.
When it comes to the hiring process in the USA, businesses must adhere to several rules and hiring practices. From the recruitment fees in the USA to the various steps involved, here’s a guide on how to hire employees in the USA.
Things to Know Before Hiring in the USA
Before you hire employees in the USA, you must have a clear understanding of the general employment regulations of the land.
So, let’s walk you through some essentials that you must keep in mind when you’re recruiting employees in your US firm:
State and federal employment regulations
It could take you a while to get the hang of the employment regulations in the USA since they encompass both state and federal laws. For example, companies must be aware of federal tax and labor laws and their state counterparts. So, a company has to comply with state and federal regulations if it operates out of a state where the two are different.
Also, while the current federal law mandates a minimum hourly wage of US$7.25, individual states can choose to impose higher minimum wages. For instance, the statewide minimum wage in New York state is US$15, while Texas charges the federal minimum wage rate.
Barring a few exceptions, employers must pay the federal or state minimum wage, whichever is higher. Most importantly, all foreign workers must have valid work visas regardless of the state where they’re employed.
Payroll and taxation
When hiring staff in the USA, you must establish a locally-compliant payroll. You have the following three options concerning setting up a payroll in the United States:
- ~Internally handle payroll through your subsidiary
- ~Partner with a US payroll processing company and establish yourself as the EOR
- ~Partner with a PEO that will handle payrolls and compliance
Abiding by the US taxation rules is equally important. The US federal law imposes seven different income tax brackets, with the highest at 35% and the lowest at 10%. Remember that the tax rates may vary with the states. In addition, you have to withhold taxes for contributions to Social Security Programs, the current rate of which is 6.2% for both the employer and the employee.
You must learn about the standard working hours before starting the recruitment process in the USA. The standard in the USA is 40 hours of work in a workweek with variations depending on the industry and company.
Although overtime is permissible, you have to adhere to specific guidelines. Further, employees in the USA fall into exempt and non-exempt categories, with the former excluded from working overtime. Non-exempt employees can work overtime and must be paid accordingly. The US Department of Labor lays down rules and guidelines regarding working hours and pay.
At-will employment and termination
At-will employment is prevalent in the USA. It means that signing formal employment contracts is not mandatory. Thus, companies can terminate their employees at will without prior notice or redundancy payment. However, it has exceptions in the case of key executives or higher-level positions. Also, Montana is a no-will state. So, if you’re an employer in Montana, you have to furnish good cause for termination before firing an employee.
You’ll also need to be acquainted with federal and state regulations around employee benefits and compensations if you hire employees in the USA. While employees in the US are not guaranteed any benefits per se, you can provide your company employees incentives and benefits packages. These include medical, vision, and dental insurance plans, paid sick and vacation leaves, childcare benefits, relocation assistance, and retirement plans. Currently, there is no federal provision of paid sick leave, although it is mandatory to pay overtime working employees for the excess hours.
The Cost of Hiring an Employee in the USA
Hiring employees is one of the most crucial investments you’ll make as part of your business expansion and growth. Since the recruitment fees in the USA depends on various factors, it’s futile to state an exact figure. Further, if your company is part of a highly competitive industry, you’ll want to offer extra perks and benefits to your employees to attract the best talent.
So, while you draw a budget for the employee hiring process in the USA, make sure to include the following direct and indirect costs:
- ~Advertising the opening
- ~Interview process
- ~Managing recruitment
- ~Pre-employment assessment tests
- ~Employee training
- ~Workplace integration
- ~Salary and benefits
- ~Payroll and taxes
- ~Insurance, commissions, & bonuses
What Does a Company Need to Hire Employees in the USA?
Hiring staff in the USA is labor-intensive and time-consuming for overseas businesses. In addition, the hiring process in the USA can be an exciting yet intimidating exercise and requires that you comply with the legal requirements of the land.
Given below is a checklist of the legal necessities associated with the recruitment process in the USA:
Obtain a tax ID for your business
After you have established a business in the USA, the first step is to obtain a tax ID for your business. Also known as the Employee Identification Number (EIN), the ID is mandatory for adding an employee to your company’s payroll. You can apply for the EIN on the IRS website.
Register with the unemployment insurance state office
It is mandatory to pay state and federal unemployment taxes if your employees’ wages amount to over US$1,500 per quarter or you employ a minimum of one person for at least 20 weeks in a calendar year. You have to register your business with your state’s unemployment insurance office and pay quarterly unemployment taxes.
Verify your prospective employees’ identity
You must use the US Citizenship and Immigration Services’ I-9 form to verify an employees’ identity before officially hiring them. Also, consider running background checks to get critical information about your prospective employee, such as arrest records.
Set up a payroll and taxation system
Hiring employees in the USA entails that you have to set up a locally-compliant payroll system. In addition, you have to withhold a percentage of every employee’s paycheck for contributing towards taxes and other employee benefits.
Ensure that employees fill out W-4 forms
All employees must be made to fill out W-4 forms. As an employer, the form details will help you withhold the correct federal income tax from your employees’ pay based on allowances, deductions, credits, etc.
Report recruits to the state registry
Employers must communicate information of new employees to their respective state’s registry. The National Directory of New Hires uses the data to withhold income from employees lagging on child support benefits.
Get workers’ compensation insurance
Depending on your state, you have to obtain workers’ compensation insurance if your employee injures themself in the line of work. The insurance covers lost wages and medical costs.
Accede to OSHA rules
As part of the hiring process in the USA, your business must comply with the OSHA (Occupational Safety and Health Administration) rules. It deals with occupational safety rules such as handling hazardous chemicals, tools, and equipment.
Various options for Hiring Employees in the USA
If you are an overseas company looking to establish a presence in the USA, there are different approaches you can take for the hiring process. Given below are the three main options you have when it comes to the recruitment process in the USA:
- ~Establish a legal entity: This may be a subsidiary such as a limited liability company. Consequently, the subsidiary will be wholly responsible for the hiring process, including administrative and legal compliance. Setting up a subsidiary can be a tedious and time-consuming affair.
- ~Hire a PEO: A PEO or professional employer organization can help you manage your employees’ payroll while also taking care of compliance and HR duties. From managing payroll complexities to reducing administrative costs, hiring PEO has manifold benefits and helps your business grow at scale. The PEO acts as the Employer of Record, relieving you of employment burdens.
Both of the above: You can go for both of the above options. In other words, you can establish a US company and hire a PEO to manage the administration and payroll of employees while you solely focus on business growth.
The Steps to Hiring in the USA
The hiring process in the USA is quite similar to other countries. However, an effective and efficient hiring process involves identifying an organization’s needs, assessing different candidates, and hiring the most qualified individual(s). It must be noted that the hiring process can differ with companies.
Below we list the standard steps of how to hire people in the USA:
- Identify the hiring need within your company: It could either be to fill a vacant position, expand organizational tasks, or better manage the workload.
- Develop a recruitment plan: Once you’ve identified the hiring need, the next step is to devise a recruitment plan.
- Write a job description: The next step is to generate a job description listing the job requirements, eligibility, desired qualifications, experience, and information regarding pay and benefits.
- Advertise the position: The hiring process can be internal, where you identify qualified candidates within your organization by notifying them of the opening. Or, it could be external where you advertise the position through various media such as company website, social media, job fairs, job portals, etc.
- Review the applications: In the next step, you must review the applications received via email, application tracking systems, etc.
- Conduct interviews: Depending on the number of shortlisted candidates, you have to conduct one or more interview sessions.
- Conduct background checks: Background checks involve reviewing the candidates’ employment history, criminal record, eligibility, etc.
- Identify the top choice: After interviews and background checks, you have to identify the top choice(s) and extend an initial offer. Also, keep a backup candidate.
Hire: After negotiations about elements in the offer letter, the candidate is hired once they accept the job offer. Follow it up with a formal onboarding.
Let Multiplier be Your EOR Platform in the USA
Hiring employees can be overwhelming, but with a global EOR platform like Multiplier, you can rest assured your company is in the hands of a trustworthy PEO. Our EOR service helps businesses legally engage with foreign workers without establishing a local entity. In addition, by acting as your employees’ EOR, we ensure that your company’s employment processes comply with the country-specific labor and tax laws.
Frequently Asked Questions
How much does it cost to employ someone in the USA?
The cost of the hiring process in the USA largely depends on the salary you will pay, including extra benefits and perks. It also includes other indirect costs involved in the recruitment process, advertisements, workplace integration, etc.
How much does a $15 an hour employee cost?
If an employee is paid $15 per hour and works 40 hours per week for 52 weeks, they work for a total of 2,080 hours. Therefore, the labor cost is $31,200 (before taxes).
How can a US company hire a foreign employee?
The two most common ways to hire staff in the USA are to establish a legal entity (subsidiary or branch) or use a third-party EOR for managing the recruitment process. You can also combine the two options.