The United States of America has had the highest GDP of any nation since the 1920s. Today it is home to a large number of businesses and organizations, many of which are leaders in their respective industries. In recent years, the highly developed US economy has shifted rapidly towards maximizing efficiency through automation and outsourcing various aspects of business operations. Among the most popular outsourced business operations are payroll and employment outsourcing in the USA (also called co-employment). This is due to a number of factors, but most notably due to the complexity of the US tax and labor system.
Employment outsourcing is extremely beneficial for businesses in the US as it can help to minimize employment lawsuit risks, improve hiring efficiency and ultimately save money. The global employment outsourcing market is expected to grow at a compound annual growth rate of 3.5% from 2020 to 2027, reaching a value of $451.6 billion by 2027.
The IMF projects that the USA will remain the largest economy in the world through at least 2030. This is good news for businesses operating in the country, as it indicates that there will continue to be strong demand for goods and services.
This growth will be driven by continued expansion in the US labor market and consumer spending. Additionally, tax cuts and increased government spending are expected to provide a boost to the economy.
This growth is being driven by the continued expansion of the global economy and the rise in digital transformation initiatives. As businesses seek to reduce costs and improve efficiency, they are increasingly turning to outsourcing employment & payroll as a solution.
What is Employment Outsourcing?
An employment outsourcing agency typically provides employer of record (EOR) and professional employer organization(PEO) services. Employer of record (EOR) is an outsourcing solution that allows businesses to outsource their employee management. The EOR becomes the legal employer of the workers, taking on all the associated responsibilities such as payroll, taxes, benefits, and compliance.
This arrangement can be beneficial for businesses that don’t have the staff or expertise to manage their employees themselves. It can also be helpful for businesses that want to avoid the hassle and expense of setting up their own human resources operations. PEOs (professional employer organizations) are a type of EOR that provide even more comprehensive outsourcing solutions, including access to group health insurance and other employee benefits.
Benefits of employment outsourcing in the USA
The United StatesOutsourcing employment, payroll and HR responsibilities can free up a lot of time and energy for companies, allowing them to focus on their core business goals. An EOR will assume all the legal liabilities associated with employment, including paying unemployment taxes, workers’ compensation insurance, and payroll taxes. They will also handle all onboarding and termination paperwork. In exchange for these services, the EOR will charge a fee, which is typically a percentage of the employee’s salary. While there may be some upfront costs associated with partnering with an EOR, doing so can ultimately save your company time and money in the long run.
Hiring remote employees: It is not possible to hire employees living and working full-time in other countries without an entity in that country. With the services of an employment outsourcing / EOR agency, these remote workers/teams can be legally hired anywhere in the world as long as the country is covered by the service provider.
Saving money: When outsourcing employment, companies save the cost and trouble of having to set up a legal entity in the desired country of operation.
Mitigating Risk: Employment disputes are a major concern for companies in the USA. When a company outsources employment they are effectively outsourcing their HR legal liabilities to the employment service provider. This is because the agency used will be the employer of record for your outsourced employees in the USA.
Flexibility: When companies outsource employment to a global employment outsourcing company, they can hire employees and set up teams all over the world without the need to register entities all over the globe. Using an employer of record is often regarded as the modern approach to expanding globally.
Employment in the USA
Employment in the USA is governed by a variety of laws, including the Fair Labor Standards Act (FLSA). The FLSA provides guidelines to employers about employment and compensation. Many states opt to establish more rigorous laws of their own that benefit workers even more; in those cases, employers must follow the state laws instead of those set by the FLSA. But in any case, employers are obliged to display a notice outlining the FLSA guidelines in their workplaces.
The FLSA sets forth several requirements for employers, including minimum wage and overtime pay. Employers must also provide employees with breaks and holidays, as well as vacation and sick leave. In addition, employers must maintain safe and healthy working conditions.
Compensation and termination in the USA
The Fair Labor Standards Act (FLSA) is the primary federal law governing wage and hour standards in the United States. The FLSA establishes a national minimum wage, currently set at $7.25 per hour, and provides for overtime pay of at least one and a half times the regular rate of pay for all hours worked over 40 in a week.
The FLSA does not impose a maximum number of working hours per week, although employers must pay workers at least 150% of their regular rate for any work performed beyond 40 hours in a week.
Employers may terminate workers at any time and for any reason, with or without cause. However, employers who terminate workers without cause may be liable for damages if they do not provide advance notice of the termination or if the termination violates a contract or other agreement. Employees who are terminated may also be eligible for unemployment benefits.
When it comes to termination, employers in the United States must provide workers with a severance package that includes at least two weeks’ pay for every year of service. The size of the severance package will vary depending on the company’s policy and the worker’s length of service. If an employer does not give the required notice, they may be liable for damages. These damages can include any income that the employee would have earned during the notice period.
Income tax requirements in the USA
Outsourcing employment is a popular way for businesses to save costs and improve efficiency. The USA is a major outsourcing destination, due to its large economy and well-developed infrastructure. However, US companies are also outsourcing jobs overseas, to take advantage of lower labor costs and access to new markets.
There are many reasons why businesses choose to operate in the USA. The country has the largest economy in the world, a well-developed infrastructure, and a business-friendly environment. Additionally, the USA is a large and diversified market, offering businesses opportunities to sell to a wide range of consumers.
Income tax rates in the USA
| Bracket | Tax Rate | Annual Taxable Income (USD) | Quick Calculation (USD) |
| 1 | 10% | 0 – 10,275 | 1028 |
| 2 | 12% | 10,276 – 41,775 | 3780 |
| 3 | 22% | 41,776 – 89,075 | 10,405 |
| 4 | 24% | 89,076 – 170,050 | 19,434 |
| 5 | 32% | 170,051 – 215,950 | 14,688 |
| 6 | 35% | 215,951 – 539,900 | 113,382 |
| 7 | 37% | >539,900 | – |
Sample calculation:
Yearly income = $200,000
Bracket 1: 10% x 10,275 = $1028 tax on the first $10,275
Bracket 2: 12% x 31,499 = $3780 tax on the next $31,499
Bracket 3: 22% x 47,299 = $10,405 tax on the next $47,299
Bracket 4: 24% x 80,974 = $19,434 tax on the next $80,974
Bracket 5: 32% x 29,949 = $9584 tax on the remaining $29,949
Total = $1028 + $3780 + $10,405 + $19,434 + $9584 = $44,231
$44,231 tax due on an annual salary of $200,000
Form 941
As an employer, it’s important to file Form 941 (the quarterly reconciliation form) at the end of each quarter. This will help ensure that you’re accurately paying income tax on your employees’ behalf. Filing Form 941 is simple: just enter your payroll information and submit it to the IRS. However, if you’re unsure of how to do this, there are plenty of resources available to help you, including the IRS website and various tax preparation software programs.
Form W-3
Employers must also file Form W-3 with the Social Security Administration (SSA) every year. This form is used to report income tax withholding from employees’ wages.
When completing Form W-3, employers need to provide information such as the total amount of income paid to employees, the amount of taxes withheld, and the employers’ identification number.
Employer contributions in the USA
Employers in the USA are required to contribute to a number of benefits programs, including:
– Insurance: Employers are required to provide health insurance for their employees. This can be done through a private health insurance plan or through the government’s Medicaid program.
– Social security: Employers are required to pay into the social security system, which provides benefits for retirees and those with disabilities.
– Medicare: Employers are required to provide Medicare coverage for their employees. This is a federal health insurance program that covers seniors and those with disabilities.
In addition to these mandatory benefits, employers may also choose to provide other benefits, such as pension plans and paid vacation days. These benefits are not required by law but can help to attract and retain employees.
Social Security and Medicare in the USA
The Federal Insurance Contributions Act (FICA) requires U.S. employers to withhold social security and Medicare contributions from employee paychecks. As of 2020, the employer contribution rate for social security is 6.2% of an employee’s taxable wages, while the Medicare rate is 1.45%. For employees, the social security contribution rate is also 6.2%, while the Medicare rate is 1.45%. However, social security contributions are not required on earnings over $118,500 a year, and the Medicare rate goes up to 2.35% on earnings over $200,000 a year.
Employer social security and Medicare contributions are used to fund the social security and Medicare programs. Social security is a federal program that provides benefits to retired workers and their spouses, as well as to survivors of deceased workers. Medicare is a federal health insurance program that provides coverage for seniors and certain disabled individuals.
The social security program is financed through payroll taxes, including the employer and employee social security contributions. As of 2020, the social security tax rate is 12.4%, with employers paying 6.2% and employees paying 6.2%. The social security tax is only imposed on the first $137,700 of an individual’s wages.
Medicare is financed through payroll taxes, including the employer and employee Medicare contributions. As of 2020, the Medicare tax rate is 2.9%, with employers paying 1.45% and employees paying 1.45%. The Medicare tax is imposed on all of an individual’s wages.
In addition to the social security and Medicare contributions, employers are also required to pay federal unemployment taxes. The federal unemployment tax rate is 6%, with employers paying the full 6% and employees paying 0%. The federal unemployment tax is only imposed on the first $7,000 of an individual’s wages.
401k in the United States
The 401k is a retirement savings plan that is sponsored by an employer. It is a tax-deferred savings plan, which means that employees can contribute money to the 401k on a pre-tax basis. This reduces their taxable income, and therefore their taxes owed.
401k contributions are made through payroll deductions, and the money is invested in a variety of investment options, such as stocks, bonds, and mutual funds. The 401k is a long-term savings plan, and employees can typically only access the money after they reach retirement age (usually 59 1/2).
There are many benefits to 401k plans, such as the fact that they offer tax breaks and can help employees save for retirement. 401k plans are also relatively easy to set up and manage.
However, there are also some drawbacks to 401k plans. For example, if an employee leaves their job, they may be unable to access their 401k funds until they reach retirement age. Additionally, 401k plans can be expensive for employers to set up and maintain.
Despite the drawbacks, 401k plans remain one of the most popular retirement savings options for employees in the United States.
Public holidays and annual leave in the USA
In the United States, there is no federal law entitling workers to any paid vacation time. Any paid leave contractually offered to an employee is entirely at the employer’s discretion. Even the US’s ten days of national holidays each year do not entitle employees to paid leave. However, there are suggestions that this may change in certain parts of the US. In 2019, New York City mayor Bill de Blasio put forward a proposal to give workers a legal right to ten days’ paid vacation a year.
This lack of statutory entitlement to annual leave or paid public holidays has been criticised by some as putting the US behind other developed countries. According to OECD data, the average worker in developed economies receives 20 days of paid annual leave, plus public holidays. This compares to just 10 days of annual leave and no paid public holidays for the average US worker.
There is also evidence that workers in the US are less likely to take their entitled annual leave than workers in other developed countries. A study by the Center for Economic Policy Research found that while 71% of American workers receive paid vacation days, only 55% actually take them. This suggests that workers in the US either feel they cannot afford to take time off work, or are worried about the implications for their career prospects.
While there is no federal law guaranteeing paid annual leave or public holidays, some states have their own laws providing these entitlements. For example, California law requires that employees be given at least 24 hours of paid rest days for every six days worked. However, these state-level laws are not universal, and workers in other states may not have the same entitlements.
It is worth noting that the US is not alone in not guaranteeing paid annual leave or public holidays by law. Australia, New Zealand and Japan also do not have any such laws. However, all three of these countries have higher levels of annual leave than the US, with Australian workers entitled to 20 days, Japanese workers receiving 10 days and New Zealanders entitled to four weeks. This suggests that while there is no legal entitlement to annual leave or public holidays in the US, employers could choose to offer these benefits to their employees if they wish to do so.
When expanding into the USA, businesses need to be aware of the following:
– Language: English is the predominant language spoken in the USA. However, Spanish is also widely spoken, especially in certain regions such as Texas and California.
– Regulations: The USA has a complex system of federal, state, and local regulations. Businesses need to be familiar with these regulations in order to comply with them.
For these reasons, outsourcing employment in the USA is extremely attractive to overseas companies.
Benefits of employment outsourcing outside of the USA
While companies all over the world have much to gain from hiring remote employees in the USA, the opposite is also true, as US based companies also seek to outsource jobs overseas to save costs and obtain a competitive edge at home.
Some of the most popular outsourcing destinations for US companies include:
– China: China is a major manufacturing hub and offers businesses access to lower, but rising labor costs.
– India: India is a major provider of outsourcing services, such as customer service and data entry.
– Philippines: The Philippines is a popular destination for outsourcing due to its large English-speaking population.
When outsourcing employment overseas, businesses need to be aware of the following:
– Language barriers: When outsourcing to another country, there may be language barriers that need to be overcome. This can be done by ensuring that clear communication channels are established between the outsourcing company and its employees.
– Cultural differences: There may also be cultural differences that need to be taken into account. For example, business customs in the Philippines may differ from those in the USA.
– Time differences: When outsourcing employment to another country, there may be time differences that need to be considered. This is especially important when outsourcing customer service or other time-sensitive tasks.
How can NNRoad help you outsource employment in the United States?
NNRoad is a global Employer of Record & PEO provider with a base in the USA. We are able to advise you and legally hire and pay your dispatched employees in the USA. For more information on our Employer of Record and Payroll related services in the United States, please visit our US services page or contact us directly.
