Top 10 Risks When Hiring in the U.S.

The United States is known to have the world’s largest economy, with a GDP of 25.44 trillion dollars in 2022. Its economy is run by several key industries, amongst which the IT industry takes the lead. From having one of the largest tech markets in the world to ranking sixth in the Ease of Doing Business Index, the United States is one country most businesses want to affiliate with. 

Whether it's tapping into the American labor force and scouting top global talent or expanding to a new market, the United States offers founders, CEOs, CFOs, directors, and HR professionals the means to successfully grow their businesses. 

However, hiring talented professionals comes with its own set of risks and challenges. From legal compliance issues to cultural differences and evolving employment regulations, navigating the hiring process in a different country can be complex.

This is when a trusted global EOR comes into the picture. A global EOR or Employer of Record helps companies navigate the complexities of hiring and managing a global team, act as the global payroll provider for international employees, and more, so you can focus on other aspects of your business. 

In this blog, we’ll explore the top ten risks associated with hiring in the United States and how an EOR can assist in risk management - mitigating legal and financial risks. 

The Role of a Global EOR

An Employer of Record plays a crucial role for businesses looking to expand and hire globally. EORs act as the legal entity on behalf of businesses in a foreign market and allow companies to hire talented professionals without needing to establish a legal entity themselves. 

For businesses that want to quickly enter new markets or explore the benefits of hiring international talent without worrying about legal complexities, an EOR can be a great resource. 

One of the primary responsibilities of a global EOR is to manage the various aspects associated with hiring and managing foreign talent in an international market. From providing global payroll services, employee benefits, and tax withholding to compliance with local labor laws and managing employment contracts, an EOR handles it all. 

They’ll even navigate complex employment regulations on your behalf so you can remain compliant with local employment laws. This is especially crucial as labor laws and regulations can vary significantly from one country to another. A reputable EOR will have a deep understanding of the local labor market and applicable employment regulations, thus ensuring your business stays within its legal boundaries.

Whether you are looking to hire a single employee or recruit a whole team of professionals from the United States, a global EOR can provide you with the flexibility and scalability to do so.  You won’t need to establish a physical presence in a foreign market and can save time and resources while taking advantage of the benefits of global hiring. 

Top Ten Risks When Hiring in the US

Hiring employees in the United States can be a complex process with various potential risks and challenges. Whether you are a small business looking to expand your horizons or a multinational corporation, it is important to understand and mitigate the risks associated with hiring in another country.

Here are the top ten risks you should consider before recruiting employees from the United States: 

1. Compliance With Local Legal Laws

One of the biggest risks when hiring in the United States is ensuring compliance with federal, state, and local employment laws. Failure to comply with these laws can result in hefty fines, penalties, reputational damage, and in some cases legal disputes. 

This is where a global EOR can assist with navigating the challenges associated with ensuring legal compliance. An EOR is equipped with the resources and expertise it takes to stay compliant and will stay updated on ever-changing employment regulations on your behalf. 

Since employment laws vary slightly from state to state in the US, it becomes essential for businesses that wish to hire Americans to stay informed on state employment regulations. 

2. Employee Classification

Another risk of hiring in the United States is ensuring you correctly classify your new hire. Whether you are looking to recruit a new full-time employee, remote employee, freelancer or independent contractor, it's essential to correctly classify your employees. 

Each employee is entitled to the perks and advantages associated with their employment type. A full-time employee, for example, has the right to work overtime and access benefits and other forms of compensation. However, an independent contractor would not have such rights. Failure to correctly classify workers can lead to major compliance risks and financial penalties. Employment contracts, benefits, compensation, and even work roles and responsibilities differ amongst different forms of talent which is why it's essential to correctly classify each worker. 

With an EOR by your side, you can mitigate the risks associated with misclassification and ensure each worker receives what they are entitled to. 

3. Wage and Hour Violations

Minimum wage laws in the United States ensure each employee is properly compensated for their work. Failure to comply with labor laws can result in penalties, fines, and reputational damage. This is why hiring managers and HR professionals must ensure they meet the requirements of local laws, especially when it comes to minimum wage requirements.

The federal minimum wage in the United States is $7.25, and each employee irrespective of their employment type is legally eligible to receive the minimum wage. It's also important to note that if an employee receives tips during their shift, the minimum wage an employer is legally required to provide them is reduced to $2.13. However, if the employee does not make at least $7.25 per hour through tips, the employer is responsible for making up the difference. 

$7.25 is just the federal minimum wage. The United States consists of 50 states, and each jurisdiction has its own set of employment laws and regulations. In fact, the minimum wage also varies between states. For example, employees from the state of California are entitled to a minimum wage of $16 per hour. However, the border state of Nevada has a lower minimum wage of $11.25 per hour. 

In the United States, a regular work week for a full-time employee consists of working 40 hours a week and 20 hours a week for part-time employees. The Fair Labor Standards Act (FLSA) does not limit the number of hours an employee over the age of 16 can work. However, for non-exempt workers, any work over 40 hours in 168 hours (7 days), is considered to be overtime. Exempt workers are “exempt” from the Fair Labor Standards Act's (FLSA) overtime regulations and are not entitled to overtime pay.

As an HR professional, it becomes essential for you to recognize and abide by these employment laws. Failure to comply with these specific federal and state laws can result in significant financial and legal risks, thus making wage and hour violations a considerable risk when hiring top talent from the United States. 

 An EOR can assist with ensuring these requirements are met. EORs specialize in ensuring their clients meet the legal compliance needs of the country or state to which they wish to expand their business. 

4. Data Privacy and Security

The process of hiring and recruiting employees for your business consists of collecting, storing, and revisiting sensitive and personal information of your candidates. There are various data privacy and security laws in the United States to which employers must comply while posting job openings. 

Failure to protect personal information in the form of data can result in data breaches, legal actions, and even harm your company’s brand. 

The Privacy Act of 1974 identifies how federal agencies can collect and store data of their employees and potential hires. The Privacy Act prohibits businesses from sharing personal information without written consent from the employee or candidate.

Along with the specific provisions of the 1974 Privacy Act, a total of thirteen states have passed comprehensive data privacy laws that determine the purpose and means of processing personal information.  

As someone looking to hire top talent in the US, data privacy and security risks are very serious and can be a huge legal and financial risk when it comes to hiring. 

5. Immigration Compliance

Another risk associated with hiring in the US is the potential violation of immigration laws. Whether you plan on hiring Americans as a part of your remote staff or plan on relocating them, you must complete the necessary immigration requirements. 

Having a thorough understanding of visa applications and work permits can be extremely useful and can even assist in mitigating non-compliance risks. However, understanding these complexities can be a lengthy and complicated process. 

To ensure all necessary visas and permits are accurately filled out and submitted, your EOR will assist in compliantly handling the intricacies of hiring or relocating top talent.

6. Employee Benefits

Offering comprehensive employee benefits is one of the most useful ways to attract and retain top talent. However, this comes with its own set of legal and financial risks. 

In the United States, employers are legally required to provide their employees with mandatory benefits such as Social Security, Medicare, unemployment insurance, and workers’ compensation. Failure to do so can result in fines and legal action.

Apart from this, you can provide your potential employees with unlimited PTO, career development and training, student loan and tuition assistance, and even flexible working hours. By creating the perfect employee benefits package for your American employees, you can increase employee retention and develop a positive brand reputation.

7. Discrimination and Harassment

When looking to hire in the United States, it’s important to consider its strict discrimination and harassment laws. Discrimination and harassment in the workplace can have serious legal consequences for your business, including lawsuits and damage to the company's reputation. 

Discrimination in the hiring process, unfortunately, is very common and can be based on demographics such as gender, age, race, or disability. To ensure equal treatment of all candidates, many businesses implement training programs for their recruitment team, embrace non-traditional resumes, or use AI to avoid biases. Clear and comprehensive policies and procedures can also be a great way to significantly reduce discrimination and harassment in the workplace. 

8. Payroll and Tax Obligations

In the United States, federal and state governments separately impose payroll taxes. The federal tax is governed by the Internal Revenue Service (IRS). The employer is responsible for collecting the tax based on payroll and remitting it quarterly or annually to the taxing jurisdiction. 

The Federal Unemployment Tax Act (FUTA) requires employers to report this tax by annually filling out Form 940 with the IRS. The State Unemployment Tax Act (SUTA) also requires employers to pay a payroll tax. However, in some states such as Alaska, New Jersey, and Pennsylvania, both the employer and employee must pay payroll tax. 

Accurately navigating through the specifics of these payroll and tax obligations is a requirement that all employers must fulfill. Apart from this, employers must also ensure tax is accurately calculated and withheld from all employees' wages. From federal income tax, social security, and medicare taxes to all other applicable state and local taxes, the employer must be prepared to meet these requirements and adapt to the ever-evolving rules and regulations. 

Payroll and tax obligations are one of the risks when hiring in the US since failure to comply can result in serious consequences, from legal action, penalties, and fines to harsher penalties such as criminal charges for non-compliance. This is why outsourcing global payroll to a trusted EOR can provide you with the support you need to compliantly hire in the United States.

9. Cultural Differences

The United States is a diverse country with people from various ethnic, religious, and social backgrounds, and each one of them brings new perspectives to the table. However, what seems like an advantage of global hiring can pose a risk when hiring from the United States. 

With cultural differences comes miscommunication. Since each culture has its own set of customs and communication styles, there's a high chance of miscommunication and misinterpretations amongst the members of your global team and how they interact with various parts of the business.  

Language differences are another potential risk associated with hiring in the United States. Since there are more than 350 different languages spoken in the United States, it’s essential to set policies and procedures that will ensure clear paths of communication. 

Training programs that promote cross-cultural understanding and sensitivity, along with providing employees the resources and support to navigate cultural differences, are also effective ways to mitigate the risks associated with hiring employees from different cultures. 

10. Attracting and Retaining Talent

The American job market is highly competitive and fast-paced, meaning finding and attracting top talent can be challenging, especially in industries with high demand. 

To effectively hire American employees, businesses must first attract and retain top talent. This can be done by providing current and potential employees with better opportunities for career advancement, higher salaries, and more comprehensive benefits. When a business offers competitive compensation packages and creates a positive work environment, it increases employee loyalty and reduces the risk of turnover.

However, even if businesses offer these perks; they must also comply with the state and federal employment requirements of the country. 

The Importance of Risk Management in Hiring 

Risk management is the process of identifying, assessing, and controlling the financial, legal, strategic, and security risks to an organization. The hiring or recruiting process is one aspect of employment where it becomes extremely helpful to have expertise regarding risk management. Minimizing the risks of making the wrong choices and ensuring you hire the best candidate for each position is the reason risk management strategies are still used today.

Risk management strategies ensure compliance with various legal requirements, allow businesses to conduct accurate security and background checks, and ensure regular training and development opportunities are provided.  

Risk management is a great asset when it comes to hiring in the United States. Implementing effective strategies allows businesses to proactively identify and mitigate the potential risks associated with doing business and recruiting new employees. By safeguarding the company's long-term success and promoting a fair and inclusive work environment, risk management gives businesses a chance to grow and make themselves more attractive to talented professionals.  

With the help of a global EOR, risk management can become a breeze. After identifying a candidate, a global EOR can assist with the entire hiring process and ensure compliance with all federal and state regulations, including anti-discrimination laws. A global EOR can also assist with meeting all the necessary visa and work permit requirements for hiring employees in the United States. 

Mitigating Legal and Financial Risks

One of the biggest benefits of partnering with a global EOR is the ability to tap into their local legal expertise and mitigate the legal and financial risks of onboarding, managing, and paying foreign hires. 

An EOR acts as the legal employer for your new hire and employs foreign talent on behalf of your business. They then take on full responsibility for ensuring compliance with local labor laws and tax regulations. This helps reduce the legal and financial risks associated with misclassifying an employee or failing to comply with employment laws. 

An EOR is also aware and up-to-date with changes in labor legislation, ensuring that companies remain compliant and avoid legal issues during the engagement. From ensuring the accurate and timely payment of employee salaries, deductions, and contributions to social security to taking liability for the various administrative and payroll operations of a business, an EOR helps mitigate the many risks associated with hiring abroad.

How Much Does it Cost to Hire in the US?

Since you’ve decided to hire in the US and have evaluated the potential areas where you must avoid risks, it’s time to calculate the cost of hiring an employee from the United States. The average cost to recruit and onboard an employee is around $4,000. However, in some circumstances, the cost of hiring can be as high as $20,000. 

As one of the world's leading economies and home to a massively skilled workforce with specialized knowledge, hiring from the United States can provide you with access to unique perspectives. 

But hiring from the US comes with a cost. That cost consists of compliance with federal and state employment laws, such as the FICA taxes, federal and state unemployment taxes, leave entitlements, wages, worker compensation, retirement plans, income taxes, and even supplementary costs. 

Some EOR platforms provide employee cost calcuators where you can estimate the cost of hiring in the US and other countries. Scaling companies should use these calculators to estimate the cost of engaging an EOR to expand their global teams.

Contact us Today!

When it comes to hiring your next employee from the United States, an Employer of Record (EOR) can hire workers on your behalf and turn the tedious hiring process into a breeze. From providing an effective global payroll solution for employees or a seamless contractor management solution an EOR can help streamline your success. 

Borderless AI is an AI-first global EOR that serves as the legal employer of your company’s international teams. We take care of administrative tasks such as payroll and taxes - all while you retain day-to-day supervisory control. Borderless AI enables businesses to compliantly hire and manage talent worldwide without establishing a foreign entity. We alleviate the complexities and risks associated with hiring global employees with zero deposits, dedicated in-house support, and AI-powered global employment law resources.

Want to learn more? Contact our experts today!

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_{Borderless does not provide legal services or legal advice to customers, contractors, employees, partners, or the general public. We are not lawyers or paralegals. Please read our full disclaimer here.}

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