For a British company, an employer of record USA arrangement means a US entity employs your American hire, runs federal and state payroll withholding, provides the benefits package US candidates expect, and carries compliance across a system that differs from UK employment law in almost every assumption. There is no national equivalent of the 5.6-week holiday entitlement, no statutory notice ladder, and health insurance arrives through the employer rather than a public system. The trade-off runs the other way too: US employment is largely at-will, and the statutory floor, set federally by the Fair Labor Standards Act and topped up state by state, is lower than anything in Europe. Nothing here is legal or tax advice.
What a US EOR does
A US EOR employs the worker, withholds federal income tax based on the employee's Form W-4, withholds and pays Social Security and Medicare taxes, pays federal and state unemployment taxes, carries workers' compensation coverage, and administers benefits. The IRS also requires employers to withhold an Additional Medicare tax of 0.9% on wages above $200,000 in a calendar year, with no employer match on that element. State-level obligations vary widely: income tax exists in most states but not all, unemployment insurance rates are experience-rated per employer, and several states add paid leave programs. The EOR's value for a UK buyer is precisely that this federal-plus-state matrix is its problem, not yours.
The statutory floor is lower than a UK buyer expects
The Fair Labor Standards Act sets the federal minimum wage at $7.25 per hour, unchanged since July 2009, and requires overtime at one and a half times the regular rate for hours beyond 40 in a workweek for covered nonexempt employees; there is no federal cap on weekly hours for adults. Many states and cities set substantially higher minimum wages, which is why the federal figure rarely binds for professional hires. There is no federal statutory paid holiday, no federal paid sick leave, and dismissal generally requires no notice or severance because employment is at-will in almost every state, subject to anti-discrimination and contract law. What UK employers treat as statutory entitlements are, in the US, benefits set by the employer, which is why the offer package matters so much.
Benefits are the real cost line
Because health insurance in the US is employer-mediated for most working-age people, a credible offer to a professional candidate includes employer-subsidised medical cover, usually dental and vision, and a 401(k) retirement plan, often with matching. These are commercial norms rather than statutory duties, and they are where US employment costs concentrate; payroll taxes themselves are moderate by European standards. When comparing EOR quotes, the fee is only part of the picture: ask what benefits plans the EOR can offer, at what employee and employer premium split, because candidate acceptance rates depend on it. An EOR with weak medical plans is cheap until your offer is declined.
EOR, PEO and certified PEOs
Terminology overlaps confusingly in the US. A PEO co-employs workers alongside your own US entity; it is the standard product for companies that already have one. An EOR employs the worker outright, which is what a UK company without a US entity needs. The IRS operates a voluntary certification program for professional employer organizations, created by the Tax Increase Prevention Act of 2014, with requirements covering financial responsibility, organizational integrity and tax compliance history; certification is worth asking about because it bears on who is liable if employment taxes go unpaid. Whichever structure you use, confirm in writing which entity is the employer for federal tax purposes and who answers if a state agency comes asking.
Questions people ask about employer of record usa
Do US employees get statutory paid holiday?
No federal law grants paid holiday or paid sick leave; some states and cities mandate sick leave. Paid time off is set by the employer's policy, and competitive offers include it, but it is contractual rather than statutory, unlike the UK's 5.6-week entitlement.
What is at-will employment?
The default US rule that either party may end employment at any time without notice or cause, subject to anti-discrimination laws and any contract terms. There is no statutory notice ladder or redundancy pay; severance is a matter of policy or negotiation.
What payroll taxes does a US employer pay?
Social Security and Medicare taxes shared with the employee, federal unemployment tax, and state unemployment taxes at experience-rated levels; employers must also withhold the 0.9% Additional Medicare tax on employee wages above $200,000, which has no employer match.
Does the federal minimum wage matter for professional hires?
Rarely. The FLSA floor is $7.25 per hour and many states set much higher rates, but professional salaries sit far above both. The FLSA matters mainly for overtime classification: nonexempt employees must get one and a half times their regular rate beyond 40 hours a week.