Synch U.S. Playbook
Get Moving in the U.S.
Our Scandinavian business is planning to move into the U.S. market. Should we hire U.S. employees directly under our current business entity?
If your current Scandinavian business entity employs U.S. workers directly, this gives your entity a legal and taxable presence in the U.S. In addition to being required to pay U.S. taxes, this presence makes your Scandinavian business entity subject to the jurisdiction of U.S. courts should disputes arise. We recommend you establish a subsidiary entity in the U.S. to be the actual employer.
Once we establish a subsidiary entity in the U.S., how do we register for payroll taxes?
In the U.S., employers are subject to federal laws as well as a variety of state laws and local ordinances. You will need to register with the federal Internal Revenue Service (“IRS”) first in order to obtain a Federal Employer Identification Number (“FEIN”). The IRS administers and collects Social Security, Medicare, federal income, and federal unemployment taxes.
In addition, you will need to obtain a State Unemployment Identification (“SUI” or “UI”) number by registering in each state where you have employees. Most states also collect state income taxes. State income tax withholding is usually administered and collected by the state’s Department of Revenue, although some states may have a unique name for their tax collection department. For example, California’s Employment Development Department (“EDD”) administers unemployment taxes, income tax withholding, and the state-sponsored disability insurance program.
Some cities also have local taxes. Each of these types of taxes is unique. For example, cities in Pennsylvania impose tax on employees who live in the city and use the tax to fund local school districts and emergency services. By contrast, a few cities in Colorado assess an Occupational Privilege Tax (“OPT”) which is assessed on anyone who works in that city.
How do we make sure we are in compliance with these complicated laws?
Because U.S. tax agencies are very aggressive in penalizing employers who make mistakes on their payroll tax returns or tax deposits, we recommend that employers out-source payroll tasks to a professional payroll service. Payroll services are able to prepare accurate payroll records and tax returns in addition to collecting the required taxes directly from your bank account on the check date and submitting the taxes to the appropriate tax agency. Most payroll services can also provide direct deposit for your employees.
What else will we need in order to hire employees in the U.S.?
Workers’ Compensation Insurance
Nearly all employers in the U.S. are required to provide workers’ compensation insurance for their employees. This insurance provides wage replacement and medical benefits for illnesses and accidents that occur in the course of employment.
Labor Law Posters
Many different governing agencies in the U.S. require employers to post notices of Employee Rights in a common location where all employees will be able to read them. Because there are so many different required postings, most employers in the U.S. purchase large federal and state labor law posters that include all of the required notices. Some payroll services provide these posters as part of the payroll package.
Employer Policies and Employee Handbooks
In the U.S., there are many federal, state and local laws that protect employee rights related to discrimination, harassment, wage and hour, and safety. Many of these laws only apply to companies with a minimum number of employees. It is important for a company to establish company-wide policies to inform employees of company expectations, employee benefits, and acknowledgement that the employer adheres to federal, state and local laws. Employer policies and employee handbooks should be reviewed or prepared by a U.S. attorney to ensure compliance with current, applicable law.
Employee handbooks are not only beneficial to employees, but also for management that may be new to the U.S. You can use a well-drafted employee handbook to provide management training for your Scandinavian supervisors and managers who are not familiar with U.S. labor laws.
New Employee Paperwork
All new employees in the U.S. must complete a Form I-9, Employment Eligibility Verification Form, provided by the Department of Homeland Security, within 3 days of beginning employment. Employees must submit documents to verify their identity and their right to work in the U.S. In addition, some states require employers to provide a notice to their new employees of basic employment information.
In addition, all employees should complete a Form W-4, Employee’s Withholding Allowance Certificate, provided by the IRS, prior to receiving their first pay-check. This form allows the employer to calculate the correct amount of income tax to withhold from the employee’s paycheck. Some states have their own withholding allowance certificate as well.