US Expansion

The US has 50 different states: which one should I focus on?

The obvious answer is to focus on those states where your clients are located or where you will find talent in your niche sector. However, there are certain states that can be identified as being particularly business friendly notably Florida, North Carolina and Texas. Other states are known for their business and tax-friendly regime for incorporation (Delaware) and finally some states are world class in a particular sector (California- Silicon Valley).

Are recruitment companies regulated in the US?

There are no specific regulations similar to the EAA/Conduct Regulations in the UK governing how recruitment companies must operate. However, UK recruiters need to be aware of federal and state anti-discrimination laws (including “Ban the Box” and “Fair Chance” laws), data privacy laws (which vary from state to state- the most robust is the California Consumer Privacy Act) and specific legislation even at the city level (New York City prohibits asking a candidate about his current salary).

What is a W-2 worker?

W-2 workers are similar to PAYE workers in the UK, and they can be engaged by recruiters through an employer of record (“EOR”) (similar to an umbrella company) who will payroll them and engage them on employment contracts.

What is a 1099 worker?

Independent contractors (“ICs”) are classified as “1099” workers for tax classification purposes. They can either be incorporated independent contractors (“corp to corp”) or 1099 sole traders. An agent of record (“AOR”) can be used to classify and payroll the IC.

Is a corp to corp similar to a limited company (PSC) in the UK?

Yes. And there are similar tests used to determine if the independent contractor is genuinely self-employed. These tests vary from state to state (ABC or Right to Control Test etc) but the “pillars” used are very similar to those used to determine if a contractor is working Outside IR35 (supervision, direction, control, financial risk etc.). Most independent contractors work on a fixed price basis under a Statement of Work (“SOW”). Your AOR can assist you with the classification process to mitigate the risk of engaging independent contractors.

Can I use my UK standard terms?

Sending a US client your standard UK terms will likely cause confusion and result in protracted negotiations. For example, the terminology will be confusing  (what is a CV?) and legislation aimed at UK employment businesses will not apply (what is AWR, Off Payroll and/or TUPE?) and most importantly you may fall foul of specific US requirements which may affect the enforceability of your contract (have you ever wondered why the liabilities/indemnities clauses are always in bold letters in US contracts?)  The quality of your standard terms may be your first opportunity to demonstrate to your client that you have a basic understanding of the idiosyncrasies between the two countries and how engagements in the US work (whether you are engaging a W-2 ,1099 or corp-to corp). The importance of bespoke US terms should not be underestimated- for example, if there was a dispute between the parties and the jurisdiction is specified as England & Wales, would a judgment granted by an English court be enforceable in the US? Taking a short-cut and using your UK terms with your fingers crossed that nothing goes wrong may be less risky for perm than temp, but nevertheless it will undoubtedly affect the client’s impression of your understanding of the market and culture.

Do we need 50 different terms of business for each state?

No. A generic “vanilla” set of terms referencing an obligation to comply with all applicable and local laws will generally suffice. However, there are certain differences between the states which you need to be mindful of as indicated above.

What are the biggest differences between US and UK terms of business (perm and contract)?

Commercially, the terms will be broadly similar to your UK terms (although the margins may be much more attractive) – there will be provisions for transfer fees (“Conversion Fees”), volume discounts, replacement candidates and refunds. Perm is an easier transition to make- with temp placements there are specific rules relating to overtime entitlement, the right to healthcare or 401k contributions and termination provisions which could land you in trouble if you don’t understand the legislation and/or culture. This risk can be greatly mitigated by engaging with an EOR/AOR who will deal with all of your compliance issues, whether you decide to deal only with W-2s or will be engaging independent contractors.

Do I need to incorporate and put “boots on the ground”?

If you are just “dipping your toe in the water” (which is advisable before incurring the costs associated with opening an office/Visa requirements etc.) you can initially use your UK entity to engage with your US clients. Once you’ve established yourself and understand the market and culture you may be ready to take the next step and open a subsidiary office, setting up an LLP (rarely recommended), C-Corp or S-Corp (only if resident in the US). It should be an entirely separate company, at commercial ”arm’s length” fully entitled to its own profits, responsible for its own operations, debts liabilities; and paying attention to all corporate or LLC formalities.

What about insurance? 

Generally you will be able to obtain an endorsement from your UK insurers to include cover for your US activities however you must ensure that you have worldwide jurisdiction and worldwide territory as many policies expressly exclude the US.