An Overview of the Employment Service in the USA

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Every new year brings new employment law changes, and 2020 is no different. There are some big changes employers need to know about at federal, state, and local levels.

In this article, we want to give you the latest updates on the employment laws in the USA and explain the benefits of an employment service in the USA.


Changes in the American Employment in 2020

In 2020, America witnessed the onset of Coronavirus. Due to the nature of this virus, many workers had to work from home. Employment, as we knew, has changed and everyone has resorted to online services.

Since “going to work” is no more the norm, employers have provided flexible working hours to their workers and have created policies that ensure healthy employees who are relaxed and ready to work on projects from home. Some noteworthy changes of employment laws include Overtime, Minimum Wage, and California Assembly Bill 5.

California Assembly Bill 5

As a result of California’s Assembly Bill 5, effective January 1, 2020, the California Supreme Court’s ABC test is now the standard for evaluating independent contractor classifications for purposes of the Industrial Welfare Commission Wage Orders, California Labor Code, and the California Unemployment Insurance Code.

That dramatically ups the ante for companies that rely on independent contractors, particularly those that have not re-evaluated such classifications under the ABC test.

Misclassification cases can be devastating, especially for misclassified non-exempt employees, and can result in minimum wage violations, missed meal and rest periods, unpaid overtime, unreimbursed business expenses, record-keeping violations, steep penalties, attorneys’ fees, and even criminal liability, among other consequences.

Misclassifying workers creates enormous risks for companies and is fertile ground for class actions and representative actions under the Private Attorneys General Act (PAGA).

Employment Contracts and Termination of Employment

Under the laws of the United States, there are no minimum requirements for an employment contract. This means that written memorialization of terms of employment is not essentially required by the law.

However, California and many US states prefer that an employment contract shall be signed between the employer and the employee at the time of hiring and prior to starting date. This helps the employer to clearly define the role of an employee in the company.

Due to the recent pandemic, recruitment, interviews, and signing of employment contracts are being performed electronically. Sometimes an employment contract could limit the ability to terminate an employee from employment because the contract could determine the terms of employment and termination thereof.

In some states, the law may also require following notice requirements before terminating an employee from employment, unless the state follows “at-will” employment. Under “at-will” employment, an employer/employee may terminate an employment contract without cause or notice.


Minimum Working Conditions

The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments. Covered nonexempt workers are entitled to a minimum wage of not less than $7.25 per hour effective July 24, 2009. Overtime pay at a rate not less than one and one-half times the regular rate of pay is required after 40 hours of work in a workweek.

Salary: Employers must ensure that they comply with federal, state, and local minimum wage laws. While the federal minimum wage ($7.25 per hour) isn’t scheduled to change in 2020, many states and local jurisdictions have new minimum wage rates that took effect on January 1, 2020.

Working time: The Fair Labor Standards Act (FLSA) does not limit the number of hours per day or per week that employees aged 16 years and older can be required to work. However, many state statutes mandate daily rest periods as well as a one-day rest period each week; generally requiring that employees who work more than four hours per day receive a break of at least 10 minutes for every hour worked. Also, many states require an unpaid meal break of at least 30 minutes after employees worked a set number of hours per day (threshold working hours generally ranging from five to eight). Furthermore, several states mandate that employees receive at least one day off in each seven-day period.

Overtime: The Department of Labor released a final rule increasing the wage threshold for employees eligible for overtime to $35,568 per year, or $684 per week, which started on Jan. 1, 2020. Employees making at or under this threshold are eligible for overtime pay under the Fair Labor Standards Act. By raising the standard salary level from $455 to 684$ a week, this rule will make all employees who earn less than $35568 annually or some 1.3 million workers eligible for overtime pay of at least time and a half under the Act. The salary threshold has not been raised in more than 15 years, and many workers argue that this hike still is not high enough.

Mandatory Benefits

The following is a comprehensive look at the benefits U.S. employers must provide in accordance with local, state, and federal law.

FICA: Social Security, Medicare, and Federal Insurance Contributions Act. In accordance with federal law, employers and employees must both contribute to funds used to underwrite Social Security and Medicare. To comply, a certain amount of tax is withheld from the employee’s gross earnings and the employer must pay that amount. The amount is calculated based on specific formulas using the Social Security tax rate (6.2%), the Medicare tax rate (1.45%), and the employee’s gross earnings.

Workers’ Compensation: This is insurance that employers must provide for workers to access in the event of a work-related accident or illness. Most employers provide this insurance through the official program administered by the state. However, this is not mandatory. As an employer, you may also be able to provide this insurance through commercial insurance or through a self-insurance program.

Disability Insurance: As of 2019, five states and one U.S. territory mandated that employers provide limited (short-term or temporary) disability insurance. These insurance plans allow for some income replacement if workers need to take extended time off for non-work-related injuries, illnesses, childbirth, and recuperation from childbirth.

As an employer, you must provide this type of insurance in:

  • California
  • Hawaii
  • New Jersey
  • New York
  • Puerto Rico
  • Rhode Island

Family and medical leave: In accordance with applicable laws, private employers with at least 50 workers and all public sector businesses must make the following available:

  • A maximum of 12 weeks;
  • Of job-protected, unpaid leave;
  • During a 12-month period;
  • To be used for qualifying family and medical reasons; and
  • To handle qualifying emergencies.

The Role of Employment Service in the USA

There are Professional Employment Organization or PEO, and Employer of Record. They are companies aiming to simplify business processes for foreign entities that choose the labor dispatch model to hire their workforce. It is common for foreign companies to find the labor laws in the USA complex and time-consuming. This especially holds true in the case of foreign companies, the development of which requires a lot of paperwork and formalities.

In order to simplify and understand staff leasing processes in the USA, a more practical route is to seek the expertise of a PEO that is accustomed to the local labor rules, freeing up your time to launch your business in the USA. The legal terms between a PEO and a foreign company are normally contractual in nature and can be extended for as long as they are needed.

How to Employ Staff in the USA

Among many factors bothering a start-up, financial cost could be the terrifying one. Given the right training and time to adapt, a human resource department containing just a few people might function well in a company of up to dozens of employees.

But the cost of the right training and the length of time could appear appealing to some. That’s why many have chosen to outsource their human resource department to a professional.

Instead of building up an HR team and purchasing labor from individual employees, why do some companies choose purchasing labor from a Professional Employment Organization?

Ronald Coase, the winner of a Nobel Prize with his paper *The Nature of the Firm* gives you the theory.

When calculating the cost of hiring an employee, salary and management fee are of the same importance. But the latter is neglected too often. For a newcomer to the USA, to sign up a pile of employment contracts with HR experts just so you can sign up more employment contracts with IT experts and accountants does not assure you the lowest marginal cost.

Let’s say the first project is a three-man job. Immediately building up an HR team for this can become a chore. A service contract with a PEO spares you 3 other contracts. That means 3 fewer risks. Find suitable employees for companies is the first step.

It can also come in the form of a package, along with payroll, labor dispute resolution, tax, and others. This package makes much sense for clients from most industries. For instance, a chemical plant’s core business is usually manufacturing and selling chemical products, to which its competitiveness is limited. Outsourcing tax and labor do no very little harm to its business model.


An employment service in the USA can definitely help your company to easily enter this big and important market and smoothly hire and pay employees. We at NNRoad have years of experience helping small and medium businesses entering the USA and manage employment and payroll for them making their business expansion smooth and easier.

Contact us to know more and see how we can help you enter the USA!

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