Launching in the US Hiring Part 2 – Americanising UK Contracts Admin and Key Challenges

For UK employees seconded to the US it would be common to keep the individual on a UK contract with the addition of a relocation agreement, private healthcare and supplementary insurance policies where required (e.g. employee liability).

For long-term employment in the US, it is often simplest to have all US-based employees become US employees, subject to applicable local, State and Federal law. If you have employees working in the US they will likely be subject to US employment law, regardless of the underlying contract, so a US-compliant contract will make it more clear to both parties what rights and obligations you and the employee have while they are in the US.

Converting UK contracts to US

In order to take an existing UK contract and translate this in to a US format, it will be important to consider:

• Which State law will apply;

• What is considered US market standard for paid time off (PTO), vacation and/or sick leave;

• At will employment and adjustment from UK expectation of a notice period or pay in lieu of notice;

• Other elements that are considered standard for a US benefits package (e.g., healthcare and 401k pension);

• Translating any option allowance into a US tax-efficient structure such as setting up a US sub-plan. Specialist tax advice should be sought on this point in particular;

• Reviewing what a competitive salary looks like with consideration to role, seniority, benchmarking for the specific location and any industry or market-standard incentive compensation, such as bonuses or commissions; and

• Reviewing any IP invention/assignment clauses to ensure maximum protection.

Compliant interviewing

In order to ensure a compliant hiring process, it is worth considering the following points given enhanced level of scrutiny by US authorities and applicants versus interviewing in the UK:

• Ensure that your job specification or any application form is compliant with the American Disability Act and the Equal Opportunity in Employment Act;

• Get written consent before any background checks and consider having all background checks conducted by an experienced third party;

• In some States, credit checks and criminal background checks are not permitted or are highly restricted;

• Consider State specific restrictions such as in Massachusetts, where employers are not allowed to ask interviewees for their previous salary; and

• Develop a set of standardised questions to stick to in interviews to ensure that discussion does not move into any more controversial or prohibited areas.

Administration associated with hiring

A typical hiring process in the US involves a similar process in the UK of interviewing, issuance of an offer letter and acceptance.  In limited situations an employment contract may be preferable to an offer letter. There is also a mix of legal and administrative actions that must also be observed including:

• Obtain an Employer Identification Number (EIN) from the IRS. This can be done online;

• Ensure a future employee satisfies US eligibility to work criteria within 3 days of hiring. This involves completing an I-9 form which establishes an individual’s right to work. This does not need to be formally submitted but should be kept on record in a separate file for each employee. An employer is expected to make a judgement on the authenticity of documents but a free online service delivered by everify can help with this;

• Register with the State’s New Hire Reporting Programme within 20 days of hiring. This process is there to track parents avoiding child support obligations by moving to a new State;

• Ensure the correct tax forms – both State and Federal – are completed;

• Keep in mind that independent contractors receive 1099 forms and should also receive an independent contractor agreement, not an offer letter; and

• Obtain workers’ compensation insurance. This covers medical costs and a portion of lost wages for an employee who becomes injured or ill on the job and is typically obtained through your PEO or benefits provider which will simplify the process.

Public notices

Regulations require that employers in the US display specific guidance on employee rights and protections. The level of disclosure is determined by specific criteria such as business size and workforce composition. This free government service takes you through what will be required and also has links to the posters that must be displayed.

Onboarding

Having a thorough, and consistent onboarding process that fits with the core company values and brand is important. A report produced by the Wynhurst Group indicates that 22 per cent of staff turnover occurs in the first 45 days. The same study indicated that an appropriate onboarding process reduced overall churn by 25 per cent. Put another way, poor onboarding will potentially increase the resource associated with hiring by up to 25 per cent!

There is also a lot of interesting commentary on who is best placed within an organisation to manage this work flow. Square, for example had a dedicated onboarding lead, often rotated each year, which would manage the whole process. Square’s onboarding checklist is also given here.

Onboarding tools and services such as Sapling or RedCarpet and many more have gained popularity as companies are increasingly looking to systemise their onboarding and ensure that best practices are repeated.

Staff handbooks

Some PEOs such as TriNet or benefit providers such as JustWorks can help create staff handbooks but there are also a large number of publically available examples; please see a selection of examples in the Dropbox or links below.  Please keep in mind that many publically available handbooks may need to be tailored to your company, State, and even municipality. Often times “off the shelf” handbooks, including those provided by TriNet, may include provisions that don’t apply to your business while omitting others that do.

Key challenges

• In order to reduce the risk of misclassifying employees, ensure that your company has an established process for assessing classification status and each individual is reviewed annually. In addition to this, ensuring that contractors do not receive any benefits that you offer to employees and that they both have independent contractor agreements and work independently, providing their own supplies and instrumentalities of work whenever possible;

• Some companies incorporate a handful of US legal terms into their existing UK agreements. The resulting “Frankenstein agreements” typically fall short of what is required in the US and may leave a business vulnerable to unnecessary legal challenges;

• Many companies will work with an employment lawyer to create a template set of employment documents but then fail to tailor these to the requirements of the States in which they have employees – remember that the employee’s location, rather than your headquarters, governs what rules will apply; and

• Simply duplicating your UK hiring process in the US can lead to risks around inappropriate interviewing in the eyes of US authorities. Understanding what questions and conduct is allowed in each State is advisable before conducting interviews. If you are using a search firm, they will typically be able to guide you through this.

Where to go next

• Check out our Dropbox for a range of additional resources;

• Administration;

o Interesting article on the legality of “pay secrecy;”

o Developments in Massachusetts around equal pay;

o Obtaining an EIN;

o Differences between a W2 and W4 filing;

• Templates;

o Template offer letter produced by Workable HR (this is very simplified and should not be used without consulting with experts  first);

o Template termination letter produced by Workable HR (this is very simplified and should not be used without consulting with experts first);

• Onboarding best practice;

o Importance of successful onboarding research report;

o Trello board;

• Example staff handbook examples from Shopify, Zendesk, Zaarly and Bazaarvoice;

• Interesting ways to communicate option packages and compensation from eshares;

• Given the specialist and technical nature of these topics, speaking to accountants and advisors such as those below is strongly suggested:

o Melissa Clarke (Payne & Fears);

o Kristin Pedersen (Daijogo & Pedersen); and

o Dan Glazer (Wilson, Sonsini, Goodrich & Rosatti).

Please send us your thoughts on the aforementioned and highlight your own experiences if they differ from the above!  Alternatively, email me or Alliott directly.

Thanks in particular to Melissa at Payne & Fears for her help in presenting this topic.

This blog and those in this series are aimed at helping entrepreneurs learn about the US market, what it takes to start here, and ultimately what it takes to succeed here. Many of the topics (if not all) are complex and it is best to view these blogs as a basic  introduction from which you the entrepreneur must triangulate to your own specific set of circumstances – and invariably it will be sensible and appropriate to seek third party professional advice.