As a business professional seeking to hire employees in the United States, you face complex regulations and compliance requirements. Employers of record can help you navigate these hurdles. In this article, learn how contracting with an employer of record allows you to hire U.S. workers and remain compliant. Understand what an employer of record is and does.
Discover how partnering with Yondaa, Inc. equips you to remotely set up a U.S. company online so you can efficiently contract with an employer of record. With the right knowledge and resources, you can hire stateside talent and expand your business while remaining compliant.
What Is an Employer of Record (EOR)?
An employer of record (EOR) is a third-party organization that handles payroll, taxes, benefits, and other human resources (HR) responsibilities on behalf of another company. Engaging an EOR allows businesses to legally employ workers in the U.S. without having to establish their own U.S. entity.
How EORs Work
EORs are professional employer organizations (PEOs) that act as the official employer for tax and legal purposes. The client company retains control over hiring, firing, and day-to-day management of employees while the EOR handles administrative and compliance responsibilities. This arrangement is known as co-employment.
For companies wanting to hire U.S. workers but lacking a domestic presence, an EOR provides an efficient solution. The EOR establishes the legal entity, secures necessary licenses and permits, and ensures compliance with employment laws. The client company can then contract with the EOR to legally employ workers on its behalf.
Key Benefits of Using an EOR
There are several key benefits of using an EOR:
- Reduce risk of noncompliance. EORs are experts in U.S. employment laws and regulations. They ensure compliance with wage laws, I-9 requirements, Obamacare, workers comp, and more.
- Access HR expertise. EORs provide HR professionals to handle onboarding, payroll, benefits, terminations, and employee issues.
- Payroll and tax administration. EORs calculate paychecks, withhold and remit taxes, and file necessary tax returns.
- Benefits and insurance. EORs offer access to group health plans, retirement plans, and other benefits that companies may struggle to provide on their own.
In summary, an employer of record allows companies to legally employ U.S. workers without the burden of benefits and complex employment laws to navigate. By handling essential HR and compliance functions, EORs reduce risk and allow client companies to focus on their core business.
Benefits of Using an EOR for U.S. Hiring
An employer of record (EOR) can provide many benefits for companies looking to hire employees in the U.S. First, an EOR handles compliance with employment laws and regulations on your behalf, ensuring you avoid potential legal issues. They are well-versed in federal, state and local labor laws regarding hiring, compensation, benefits, taxation, and termination.
Reduced Legal Risk
By using an EOR, you mitigate risks associated with misclassifying employees, failing to provide legally mandated benefits, or improperly handling employee data. The EOR assumes responsibility for compliance to shield you from penalties and litigation.
Access to HR Expertise
EORs have specialized human resources knowledge and experience that would be costly to develop in-house. They handle essential HR functions like payroll, benefits administration, employee handbooks, performance reviews, and termination procedures.
Scalability
An EOR enables you to rapidly scale your U.S. operations without the burden of establishing internal HR infrastructure and systems. You can expand into new locations and increase headcount efficiently by leveraging the EOR’s existing framework.
Cost Savings
Using an employer of record may provide cost savings versus establishing a U.S. entity and hiring dedicated HR staff. EOR fees are often less expensive than the combined costs of payroll taxes, employee benefits, paid time off, and HR technology and staffing. EORs can also help negotiate better rates on services and benefits due to their larger size.
In summary, an employer of record offers an efficient solution for U.S. hiring and HR management without the complications of establishing local operations. By outsourcing compliance, accessing HR expertise, enabling scalability, and reducing costs, an EOR allows you to focus on growing your business. Partnering with a reputable EOR provider is a strategic decision that can support your company’s success in the U.S. market.
Top EOR Providers in the U.S.
ADP TotalSource
ADP TotalSource is one of the largest employers of record in the U.S., serving over 700,000 worksite employees. They offer a full suite of HR services including payroll, benefits, compliance, and risk mitigation. ADP TotalSource allows companies to outsource their HR functions so they can focus on their core business. They have over 70 years of experience and local HR experts in all 50 states to help navigate complex compliance issues.
Insperity
Insperity is another leading EOR provider, serving over 100,000 worksite employees. They provide comprehensive HR and business performance solutions including payroll, benefits, compliance, and technology. Insperity’s model allows businesses to offload the administrative burden of HR so they can direct their efforts toward strategic initiatives and growth. They have over 30 years of experience helping companies establish a legal employment structure and remain compliant with all federal, state, and local regulations.
TriNet
TriNet is one of the foremost PEOs, serving over 17,000 clients and 330,000 worksite employees. They provide HR solutions including payroll, benefits, risk mitigation, and compliance. TriNet allows companies to focus on their business by handling all HR, payroll, and benefits functions. They have over 30 years of experience, licensed HR professionals in all 50 states, and keep companies up-to-date with changing laws and regulations to ensure full compliance.
When choosing an EOR provider, consider their experience, services offered, availability of local HR support, and ability to keep your company legally compliant. The top EORs like ADP TotalSource, Insperity, and TriNet have decades of experience establishing and managing HR infrastructure for companies across diverse industries. By outsourcing HR functions to a reputable EOR, you can ensure your employees are paid accurately and legally while focusing your efforts on business growth.
Lead and Gain
Lead & Gain provides a single, one-stop solution for onboarding & paying contractors. Our services give you freedom from the time-consuming and stressful administrative processes, allowing you to concentrate on increasing your sales revenues.
Lead & Gain will thoroughly review all contractual, compliance and employment documents and walk contractors through a detailed onboarding process.
With the support of their dedicated in-house legal team, Lead & Gain are able to support a wide array of unique circumstances surrounding end customer legal requirements, immigration, complex contract negotiations and much more.
How to Choose the Right EOR
Consider Company Values and Culture
When selecting an EOR, it is prudent to evaluate how well their values and company culture align with your own. Core values shape how a company operates and interacts with clients. Choosing an EOR with a culture that complements your own will lead to a smoother partnership. Discuss each other’s values and priorities to determine fit.
Examine Their Service Offerings
EORs provide a range of services to handle HR functions, payroll, benefits, compliance, and more on your behalf. Review the specific offerings of potential EORs to ensure they can manage all the tasks you require. Some EORs specialize in certain areas like payroll or benefits, while others provide more comprehensive, full-service options. Select an EOR that can address all your needs to avoid having to contract with multiple companies.
Evaluate Their Experience and Expertise
An EOR’s experience and expertise directly impact their ability to properly handle essential HR and compliance responsibilities. More experienced EORs will likely have well-developed processes, more knowledgeable staff, and a proven track record of success. Inquire about the EOR’s history, staff credentials, client retention rates, and compliance record. Industry expertise in your field is also valuable. An EOR highly experienced with companies similar to yours will better understand your unique needs and challenges.
Review Reporting and Communication
Ongoing communication and comprehensive reporting are key to a successful partnership with your EOR. Discuss the types of reports and metrics the EOR provides to ensure you stay informed on essential areas like payroll, taxes, employee benefits usage, and other HR functions. Also, evaluate their preferred communication methods and frequency. Select an EOR willing to openly communicate and share any necessary details or documents to facilitate transparency and trust in the relationship.
Compare Pricing and Contract Terms
While price should not be the only factor in your decision, it remains an important consideration. EOR fees typically include a base rate along with possible additional charges for certain services. Compare rates from potential EORs to determine what fits your budget. Also, review their standard contract terms to ensure conditions like service level agreements, termination policies, and liability limits are acceptable before entering into an agreement. Choosing an affordable and fair EOR will lead to a sustainable long-term partnership.
In summary, evaluating company values, services, experience, communication, and pricing when choosing an EOR will help you select a provider able to meet all your needs as an employer. Taking the time to thoroughly compare options and find the right fit will create a foundation for a successful ongoing relationship.
Setting Up Payroll and Benefits With an EOR
Compliance and Tax Responsibilities
When hiring employees in the U.S., companies must adhere to complex compliance and tax regulations. An employer of record (EOR) handles these responsibilities on your behalf to ensure full legal compliance. They will register as the employer for your workers, handling obligations such as income tax withholding, social security contributions, and unemployment insurance payments. By leveraging an EOR, you can avoid the risks of non-compliance and focus on your core business operations.
Health Insurance and Retirement Plans
In addition to compliance, an EOR can administer employee benefits such as health insurance, retirement plans, and other perks. They have relationships with major benefits providers and can offer competitive and comprehensive packages for your workers. As laws such as the Affordable Care Act mandate certain benefits, an EOR ensures you meet all requirements. They can also manage enrollment, changes, and terminations to provide a smooth experience for your employees.
Payroll Processing
An essential function of any EOR is to process payroll for your workers. They handle all wage payments, tax withholdings, and regulatory reporting in a timely and accurate manner. Workers are paid on schedule according to the compensation and payment terms you define. Meanwhile, you avoid the burden of manually calculating wages and deductions for each pay period. An EOR’s technology and automation streamline the entire payroll process on a recurring basis.
Staying Compliant with Labor Laws
Employment laws in the U.S. are complex with regulations at both federal and state levels. An EOR stays up-to-date with all legislation and ensures your company remains fully compliant. They monitor issues such as minimum wage, overtime pay, workplace safety, and employee classification to avoid violations that could result in legal penalties. By leveraging an EOR, you minimize the risk of non-compliance and costly lawsuits from employees or government agencies.
In summary, an employer of record provides a turnkey solution for establishing a legal employment framework in the U.S. They handle all regulatory, compliance, benefits, and payroll responsibilities on your behalf so you can focus on growing your business. By outsourcing these complex functions to an EOR, you gain peace of mind that your company is meeting all legal obligations as an employer.
Managing Compliance Through Your EOR
Tax Compliance
As an employer, your EOR will handle all tax withholding, reporting, and payment requirements on your behalf. This includes withholding federal, state, and local income taxes from employee paychecks as well as paying the employer’s share of Social Security and Medicare taxes. Your EOR will also prepare and file all required tax returns, such as quarterly 941 returns and annual W-2 and 1099 forms for your employees and contractors.
Benefits and Insurance
In addition to payroll, your EOR can also administer employee benefits and insurance plans. They can facilitate health insurance enrollment, deduct premiums from paychecks, and remit payments to insurance carriers. Your EOR may also be able to provide access to retirement plans like 401(k)s, life insurance, disability insurance, health savings accounts, and other voluntary benefits. Offering competitive benefits is key to attracting and retaining top talent.
Compliance and Risk Mitigation
Perhaps most importantly, working with an EOR helps ensure you comply with the complex web of federal, state, and local employment laws and regulations. Your EOR stays up-to-date with requirements like the Fair Labor Standards Act, Occupational Safety and Health Administration standards, anti-discrimination laws, and paid leave mandates so you can avoid penalties and litigation risks. They provide guidance on proper classification of employees and contractors, payroll procedures, workplace policies, terminations, and other compliance issues.
Conclusion
Navigating U.S. employment compliance requires significant time and resources. By contracting with an EOR, companies can gain peace of mind while focusing on their core business. An EOR essentially acts as your outsourced human resources department, handling everything from payroll and taxes to benefits, insurance, and compliance. With the day-to-day administrative burdens lifted, you will have more bandwidth to grow your company.
Taxes and Insurance Considerations
Payroll Taxes
When hiring employees in the U.S., companies are required to withhold federal payroll taxes and state taxes from employees’ wages. As the employer of record (EOR), they will handle all required tax withholdings on your behalf. The EOR will withhold and remit federal income taxes, Social Security and Medicare taxes (FICA), and any state income taxes. They will also issue W-2 and 1099 tax forms to your employees and contractors at year end.
Workers’ Compensation Insurance
Most states require employers to carry workers’ compensation insurance to cover employees in the event of a work-related injury or illness. The EOR will obtain the necessary workers’ compensation coverage on your behalf according to the requirements in each state where you have employees. They will handle administration of the policies as well as claims management and resolution.
Health Insurance
Under the Affordable Care Act (ACA), companies with 50 or more full-time employees are required to offer affordable health insurance that provides minimum essential coverage. If your company size mandates the offering of health benefits, the EOR can assist in establishing group health insurance plans for your employees. They can help evaluate plan options and providers, facilitate enrollment, and administer the plan on an ongoing basis. For smaller companies not subject to the employer mandate, the EOR may still be able to offer group health plans as an optional benefit.
Other Considerations
Additional liabilities to be aware of when employing U.S.-based workers include federal and state leave laws, workplace safety regulations, and employment discrimination protections. A professional EOR will have expertise in all areas of compliance and help ensure your company meets its legal obligations as an employer. They can also advise on best practices for employee handbooks, workplace policies, and HR procedures. Using an EOR lifts the burden of these complex responsibilities and allows companies to focus on their core business.
Forming a U.S. Company Online With Yondaa
To establish a legal business entity in the United States and contract with an employer of record, you will need to form a U.S. company. Yondaa, Inc. provides an efficient means to remotely set up a corporation or LLC online.
Yondaa’s digital incorporation services allow foreign entrepreneurs and businesses to establish a legally-compliant company in the U.S. without needing to travel or hire legal counsel. Their automated platform can form your corporation or LLC in any U.S. state of your choosing. You simply provide some basic information about your new company, and Yondaa handles the rest—from filing the necessary paperwork with the state to obtaining your EIN/TIN.
Once your U.S. company is established, you are ready to contract with an EOR to legally hire employees and contractors on your behalf. The EOR will handle critical human resource functions like payroll, benefits, compliance, and workforce administration. This allows you to focus on growing your business while avoiding the risks and responsibilities that come with directly employing staff in the U.S.
Using Yondaa to form your U.S. company provides several advantages. Their services are affordable, fast, and compliant with all laws and regulations. Yondaa also provides ongoing support and a dedicated business address/mailbox for your new company. They can recommend reputable EOR providers and assist you through the contracting process.
Establishing a U.S. company with the help of Yondaa and then partnering with an EOR is an excellent solution for foreign businesses seeking to hire staff and scale operations in the United States. Their streamlined processes enable you to get up and running quickly while ensuring compliance with employment laws. This approach minimizes hassles and helps set you up for success as you build your U.S. presence.
In summary, Yondaa provides an easy way for foreign companies and entrepreneurs to legally form a U.S. corporation or LLC online. By partnering with an EOR, you can then hire employees and contractors to help your business grow, all while avoiding the burdens that typically come with direct employment. Their services offer an efficient path to launch and scale your operations in the U.S. market.
EOR FAQs: Your Top Questions Answered
Employing an Employer of Record (EOR) allows companies to hire employees and contractors in the U.S. without establishing their own legal entity. An EOR handles human resource administration and compliance obligations on your behalf. However, you may have questions about how EORs operate and whether they suit your needs. The following addresses some of the most frequently asked questions regarding EORs.
What are the benefits of using an EOR?
Utilizing an EOR provides several advantages. It alleviates the burden of setting up a U.S. legal entity and handling related compliance requirements. EORs have expertise in U.S. employment laws and regulations, reducing risks of non-compliance and associated penalties. EORs also handle payroll, benefits, and other HR functions, allowing you to focus on your core business.
How much control will I have over employees?
While the EOR legally employs your workers, you retain control over day-to-day management and operations. The EOR handles administrative and compliance responsibilities, but you direct employees’ work activities, evaluate performance, and make hiring and firing decisions. The EOR relationship is a co-employment model, where responsibilities are shared between the client company and the EOR.
How are employees paid and receive benefits?
The EOR pays employees and provides benefits like healthcare coverage, paid time off, and retirement plans. The EOR invoices you for these costs, and you reimburse the EOR. Some EORs charge an additional fee for their services, while others collect fees through a markup on employee costs. Employees receive compensation and benefits through the EOR but work under your direction.
Can an EOR relationship be terminated?
Yes, the relationship between a company and an EOR can be terminated, often with 30 to 90 days’ notice. If the relationship ends, the EOR will typically transfer employment records and handle final pay and benefits for employees. The company would then need to establish its own legal entity and HR infrastructure to continue employing those individuals.
An EOR allows companies to hire top talent in the U.S. without the challenges of establishing their own legal entity. While EORs handle compliance and administration, companies maintain control over their operations and workforce. EOR relationships provide flexibility but can also be discontinued if needed. By understanding the EOR model and its benefits, companies can make an informed choice about whether co-employment suits their needs.
Conclusion
As you have seen, hiring employees and contractors in the United States as a foreign company can be complicated and risky without the proper support. Partnering with an employer of record service simplifies compliance and reduces liability.
With the help of a company formation provider like Yondaa, Inc., you can quickly and easily establish a U.S. entity online to contract locally and leverage an employer of record. This allows you to build your team in the United States smoothly and with confidence. Consider how an employer of record model and accessible company formation can empower your organization’s growth and success.
