Top Six Questions UK Companies Ask About Hiring Employees in the US

In the course of advising and assisting UK companies entering the US market, our clients ask a lot of questions about hiring employees in the US. Here are the top six questions we get.

1. What costs should I expect to incur, in addition to employee salary or wages? In addition to employee salary or wages, you can also generally expect to incur: (a) the cost of employee-negotiated employee benefits (e.g., health insurance cover or employer-provided retirement contributions); (b) FICA taxes; (c) the cost of workers’ compensation cover; and (d) unemployment insurance (discussed below). FICA taxes are paid into the US Treasury to provide social security payments (i.e., federal disability and retirement benefits) and Medicare benefits (including old-age health care). The employer must pay 7.65% of wages up to $160,200 (in 2023) plus 1.45% beyond this cap. Workers’ compensation cover is required in 49 of the 50 US states, although many of these states exempt employers with only one or two employees from the requirement. Workers’ compensation cover provides payments to employees who suffer work-related injuries or illnesses. The cost to provide such cover varies by industry, but typically is between 1% and 3% of total employee compensation.
2. What limitations exist on my ability to terminate employees? In short, very few. The general rule in the US is that, absent a contract to the contrary, employees serve at-will and may be terminated for any reason or no reason, with no notice. Federal anti-discrimination laws modify this rule by prohibiting discrimination by employers with 15 or more employees based on race, color, national origin, religion, gender, or disability and by prohibiting discrimination by employers with 20 or more employees based on age. The laws of some US states – and even of some US cities – superimpose other additional or more stringent anti-discrimination requirements.
3. Do I have to provide health insurance to my employees? In the US, generally only employers with 50 or more full-time equivalent employees are required to provide health insurance to their employees. However, highly educated employees, highly skilled employees, or employees in highly competitive segments of the labor market will expect and demand health insurance cover as part of their compensation package. In the US, employer-provided health insurance is deductible to the employer when computing taxable corporate income, but is not taxable as income to the employee. Generally, the cost of cover depends upon the employee’s age, gender, and location, as well as the scope of coverage provided.
4. What holiday, sick-leave, or maternity/paternity leave must I provide to my employees? In sharp contrast to the 28 days’ paid annual leave to which most UK employees are statutorily entitled, there is no federal legal right to paid holidays or sick-leave in the US (some states or local governments do have paid disability requirements). Also, unlike in the UK, generally employees have no statutory right to maternity or paternity pay (subject to some state or local exceptions). Paid holiday and sick-leave are generally decided as a matter of volunteer employer policy or, in the case of highly sought-after employees, of contract negotiations at the time of hire. For salaried employees, two weeks of annual paid leave (including sick-leave), in addition to certain federal holidays, is common. Under federal law, employers with 50 or more employees must provide certain eligible employees up to 12 work weeks of unpaid leave each year to attend to a serious health condition of the employee or immediate family member or to care for a newborn child. In addition, employers with 15 or more employees must offer reasonable accommodations – which could include unpaid leave – for employees suffering from a disability unless doing so would cause undue hardship for the employer.
5. Does the US require employers to pay redundancy payments to severed employees? No. The US has no equivalent to the UK concept of redundancy payments. Instead, employers make payments into an insurance fund, out of which employees who have been laid-off through no fault of their own can receive post-severance payments. Each US state determines the qualifications for such payments, the amount of the payments, and the length of time that employees receive such payments, within constraints set by federal law. The cost of insurance cover varies by state and is determined in part by the employer’s history of employee lay-offs. The cost of such coverage varies wildly. Typically, the cost is under $42 per year per employee.
6. Do employers have collection and reporting requirements similar to those under the UK PAYE system? Yes. Employers are required to withhold from each paycheck an estimated amount of income tax due on account of the payment plus the employee’s portion of FICA taxes (which are equal to the employer’s portion). These payments must be paid over to federal, state, and (occasionally) local governments, typically monthly. If the employer fails to pay over these funds, then any owner, officer, or person with responsibility for making the payments will be personally liable for the amount owed. The amount to be withheld is determined ultimately by the employee, who completes federal Form W-4 (and similar state tax forms) to inform the employer of the number of exemptions claimed for purposes of calculating the amount to be withheld.