By Dylan T. Rupchock, Associate Attorney
As an expanding European or Scandinavian business, you may find yourself exploring the possibility of establishing a presence within the United States. Our team specializes in cost effectively setting up new and foreign businesses in the U.S. Outside of the general corporate formalities involved in such an endeavor, one of most important things you will encounter as a new U.S. business is … hiring. Somewhat complicating this process is the inability to adopt a “one size fits all” approach to employment in the U.S. The United States is best thought of as a body of land made up of 50 different countries (States), with some exceptions, those States operate independently and have differing laws. Due to the higher-than-average litigious nature of U.S. citizens and businesses, it is important that you have sound legal counsel and at least a threshold understanding of the laws and issues at play. This article serves to highlight some key employment laws where the U.S. differs from its foreign counterparts.
Wage & Hour:
It is important as an employer in the United States to ensure you are complying with the wage laws of the state in which you hire employees. Companies such as Wells Fargo, McDonald’s, Uber, Walmart, FedEx and others have fallen victim to multi-million-dollar wage & hour lawsuits in recent years due to the nuanced nature of U.S. wage laws. For smaller businesses, such suits can be crippling. Foreign companies are especially at risk given the differences in their countries’ employment regulations as compared to the U.S. It is therefore crucial that one of your first steps in establishing yourself in the U.S. is ensuring you are complying with the relevant employment laws.
In the U.S., federal law sets a mandatory minimum wage, which operates as the bare minimum a U.S. employee can be paid for their services. However, many States provide differing minimum wage requirements which mandate a higher wage rate to be provided to employees within that State, even further so, some counties within those States mandate increased minimum wage rates. This differs significantly from the Scandinavian Peninsula, where there is no federally mandated minimum wage.
Minimum wages are typically based on where your employee performs work, whether that be their home or your office. Therefore, the relevant minimum wage requirement can change depending on where the work is performed, in some cases two or more requirements could apply to the employee. Make sure you research and review the relevant minimum wage requirements in your State or county.
Foreign labor laws are often more protective of employees in terms of the number of hours they can work and the kinds of breaks that companies are required to provide. For example, in the European Union, the number of working hours is limited by Council Directive 93/104/EC, as amended by Directive 2000/34/EC, also known as the “Working Time Directive”. Generally speaking, the Working Time Directive provides that average working hours during a seven-day period may not exceed 48 hours, including overtime, calculated over a period of four months. As opposed to disallowing how much a U.S. employee can work, U.S. law instead requires workers be paid an additional sum of money for work in excess of a certain threshold.
Minimum wage laws work hand in hand with overtime laws, which define how much employees need to be paid if they work in excess of a specified number of hours. While most States mandate that all hours worked in excess of forty (40) hours be paid at an overtime rate of pay, some States require daily overtime to be paid for hours worked in excess of eight (8) in the day. This differs from many other countries in the world, such as Denmark and the United Kingdom, which do not mandate overtime pay. Litigation over violation of U.S. overtime laws is another common area of exposure of doing business in the U.S and thus should be respected accordingly.
Exempt & Non-Exempt Employees:
The United States offers differing degrees of protection to its workers depending on a number of factors. Employee’s fall into one of two categories, Exempt or Non-Exempt. These are terms of art in the U.S. which define whether or not an individual worker is or is not exempt from certain U.S. employment regulations. In short, Exempt workers are excluded from minimum wage, overtime regulations and other rights and protections afforded to nonexempt workers.
Properly classifying your employees can make a world of difference for your business. To be clear, you must do so properly. Some businesses attempt to avoid the added obligations beholden to non-exempt employees by giving their workers inflated job titles and paying them a salary, claiming they are exempt from minimum wage and overtime laws. These types of practices create significant risks to the business in the form of misclassification claims.
In the U.S., to be properly classified as exempt, the worker must be paid a salary, the required salary varies from state to state and generally changes each year. Additionally, and most importantly, the worker has to be employed in a Executive, Administrative, Professional, or Outside Sales capacity. Each of these exemptions have their own requirements and caveats that need to be met in order to properly classify the employee as such. A common theme for the exemptions is the general requirement that the worker’s job duties involve the use of discretion and independent judgment.
One of the biggest conceptual differences between the U.S. and European employment practices, is the unique at-will employment doctrine. The term “at-will employment” is a legal term meaning that an employer can terminate an employee for any reason and with or without notice. There are no regulations requiring employer’s provide varying notice lengths depending on the employee’s length of service. The limited restriction placed on employers in this regard is only that you cannot fire an employee if the reason for doing so is illegal or discriminatory, such as firing someone because of their gender, race or religion.
The at-will concept provides both employee and employer abundant freedom should either party want to move on from the employment relationship. At the same time, the U.S. also recognizes the parties’ freedom to contract, meaning employers and employees can delineate conditions or exceptions to the at-will doctrine through an employment contract or employment agreement.
Unlike many foreign countries, such as Denmark, Italy, France, and Sweden where monthly payment of employee wages is standard, most states in the United States require employees to be paid at least twice a month. Some states go further to define certain periods or dates in which you need to pay employees by. It is therefore essential, that you as a business, consult the local regulations to ensure you are paying your employees in the proper intervals.
Termination and Final Pay:
In line with the at-will doctrine highlighted above, there are currently no requirements in the United States requiring businesses to pay employees a specified severance. However, unlike many European countries, the U.S. has strict regulations relating to final payment to employees who are separating from employment. Common with the theme of this article, each state has a different requirement which you will need to be aware of when terminating an employee or if they are resigning. Some states mandate that you pay all wages owed to the employee, including accrued unused vacation time, on the final day of employment. Other States provide that final payment may occur several days after the last date of employment. It is important that your business be aware of these regulations as you will find that more often than not, payment upon separation of employment occurs outside of your usual payroll cycle. If your employee is located in one of the states imposing stricter regulations, you may be exposed to penalties for each additional day you are late in providing timely payment to the departed employee.
Depending on where you hire or do business in the United States, non-compete agreements may be banned outright or strictly scrutinized and limited to a reasonable scope. However, unlike countries like Sweden and Denmark, the U.S. generally, does not require compensation be provided to the employee during the non-compete period for those states that do allow such agreements. Most states allow slightly lessoned restrictions on other restrictive covenants such as covenants not to solicit employees or customers. If you want your employees to be subject to any restrictive covenants make sure to research your State’s laws relating to such agreements or consult legal counsel.
In the United States, there is no requirement that employees be provided with paid or unpaid vacation time. Meaning it is the employer’s choice how much vacation time, if any, it wants to provide to its employees. Vacation time is often a persuasive bargaining chip in employment negotiations in the U.S. as most U.S. workers employed at a non-executive level are usually only provided with two weeks or 10 days of vacation a year. This is quite different from other foreign countries. Denmark for example, via the Danish Holiday Act, entitles employees to 25 days’ holiday every year, and to take 15 of the 25 days consecutively between 1 May and 30 September.
Talking about medical insurance in the employment context may seem odd if you are from the U.K. or Scandinavia, where healthcare is free to residents and funded entirely by public funds. In America, citizens, employers, and the government are responsible for healthcare. For most Americans the most common way to obtain medical insurance is through their employment. Offering medical coverage to your U.S. employees is a general expectation and business cost you should anticipate, as the people you will be seeking to hire will more than likely expect it to be offered. Although providing medical insurance to employees is considered a benefit which may make you more or competitive in the hiring market, at a certain point you are required to provide health insurance to your workforce. Under the Affordable Care Act (ACA) employers with 50 or more full-time employees (or the equivalent in part-time employees) must provide health insurance to 95% of their full-time employees or pay a penalty to the IRS.
As highlighted above, doing business in the U.S. can be complex. As a new business in the U.S., you will need to navigate the different, and potentially conflicting, laws of several states. This is often a consideration overlooked by many foreign companies who make the move.
Our dedicated team of experienced professionals at Martensen Wright focus almost exclusively on assisting European based businesses establish themselves in the U.S, working to simplify the process so that management can focus on revenue generation.