Pitfalls to avoid when expanding to the US Contract recruitment market

Expanding your UK recruitment business to the United States is an exciting venture, filled with huge potential. We’ve already detailed the reasons why now is a great time to consider branching out to the US, but it's also important to tread carefully. There are many unique challenges that come with establishing yourself in this new territory, and if you don’t find a way to navigate them successfully, your American dream could well turn into a nightmare.

In this article, we'll guide you through the most common pitfalls to avoid, offering insights and tips from our UK-based US expert Dan Brogan to ensure your new venture in the US will be successful.

1. Understanding the legal landscape
2. Bridging the cultural gaps
3. Securing good funding options
4. Streamlining your operations
   

Understanding the legal landscape

One of the first hurdles you'll encounter when expanding to the US is the complex and varied legal landscape. Each state and location has its own set of laws concerning worker classification, employment regulations, taxes, insurances, and benefits. Navigating this maze can be overwhelming, and compliance is non-negotiable.

Here are some of the factors you’ll have to stay on top of to ensure compliance:

• Worker classification: determining whether someone is an employee, or an independent contractor is one of the most important areas to get right. States may adopt their own criteria, which will then impact other issues like overtime, minimum wage, and eligibility for benefits.
• Employment regulations: this may encompass diverse points such as working hours, breaks, and anti-discrimination laws. States may impose additional requirements on top of federal requirements, affecting employer obligations and employee rights. Taxation diverges across states, influencing income, sales, and payroll taxes. Some states lack income taxes, while others implement progressive tax systems.
• Insurance mandates: these differ widely, including workers' compensation and unemployment insurance. States establish unique requirements for coverage, affecting employer costs and worker protection. Employee benefits, such as health insurance and retirement plans, face variations in state-mandated offerings and employer obligations.

Understanding these disparities is crucial for businesses operating across state lines, as compliance is necessary to avoid legal repercussions. Employers must navigate this intricate web of regulations, seeking professional advice to ensure compliance with specific state laws and providing employees with fair and lawful working conditions.

Dan's tip: Consider partnering with an Employer of Record (EoR) to help guide you through these legal intricacies. An EoR can provide valuable guidance to ensure your business adheres to local laws and regulations, minimising the risk of legal complications and ensuring a smooth operation.

Bridging the cultural gaps

Although it’s true that the UK and the US share many similarities, there are some differences that you’ll need to familiarise yourself with to succeed in the US recruitment landscape. Understanding these nuances is important for building successful relationships with clients and candidates. Additionally, adapting your recruitment strategies to align with American work culture will not only improve your chances of success but will also enhance your reputation in the competitive US mark

Here are some of most significant employment-related cultural differences between the UK and the US:

• Worker classification: in the US, there are three main types of worker groups and it’s important to understand the differences. W2 employees are traditional staff with taxes withheld by employers. Corp-to-Corp involves a business contracting with another, often through an intermediary corporation. 1099 workers are independent contractors responsible for their own taxes. Each classification has distinct implications for taxation, benefits, and legal relationships in the employment context.
• Work hours: in general, the US has a reputation for longer working hours compared to the UK. The standard workweek in the US is often 40 hours or more, and it's not uncommon for employees to work overtime. In the UK, the standard workweek is typically around 35-40 hours.
• Vacation: the UK tends to have more generous vacation allowances. It is common for UK employees to have at least 28 days of paid leave per year, including public holidays. In the US, vacation time is usually bundled together with sick leave (paid time off or PTO) so it can vary from one person and one company to another, but generally speaking, it's often less than what employees get in the UK.
• Benefits: the UK typically offers more extensive statutory employment benefits, including a minimum of 28 days of paid leave, universal national health care (NHS), and statutory sick pay. In the US, employment benefits vary widely, with no federal mandate for paid leave. The US relies on employer-based health insurance, so healthcare benefits can be a huge factor when employees are applying for jobs and considering job offers.
• Job security: the concept of job security can be perceived differently. In the UK, there might be a stronger expectation of job security, and permanent employment contracts are common. In the US, the "at-will employment" model is more prevalent, meaning employers can terminate employment without cause (with some legal exceptions).
• Job mobility: Americans are often more willing to change jobs and pursue new opportunities. Career mobility and switching employers are considered more acceptable and common in the US.
• Work-life balance: both countries value work-life balance, but there may be differences in how it's achieved. The UK may emphasise longer vacations and shorter working hours, while the US may prioritise flexibility in work arrangements.

Dan's tip: Keep in mind that these are generalisations, and there is significant diversity within both the UK and the US. Individuals and companies may vary in their adherence to these cultural norms, and these trends can evolve over time. Additionally, globalisation and the influence of multinational corporations have led to a blending of cultural practices in many workplaces.

Securing good funding options

Funding your US expansion may prove to be a tougher nut to crack than you might anticipate. Unlike in the UK, where various funding options are readily available.

Seeking venture capital from US-based investors, engaging with angel investors, or exploring partnerships are common avenues. However, securing capital in the US can be more challenging and expensive, especially when you have no existing credit record in that territory or possibly a US entity. UK recruiters may face challenges in finding financial service providers tailored to their specific needs, with limited options available to them for US expansion-focused services. High fees and a lack of flexibility in financial products can leave them at a disadvantage and could ultimately impact their competitiveness.

To navigate these challenges, UK recruiters should conduct thorough research on funding providers, seeking those with experience in supporting international expansions – specifically for contract recruitment. Success hinges on a strategic approach that blends financial acumen with a keen awareness of the unique demands posed by the US market.

Dan's tip: While some recruiters opt for self-funding, exploring funding options from reputable providers like 3R can be a game-changer, especially if you are targeting growth at scale. Carefully assess your financial needs and explore funding solutions that align with your business goals to ensure a stable and sustainable expansion, with full visibility of the fees involved.

Streamlining your operations

Efficiency is the key to success in the US market, and a fragmented operational structure can hinder your progress. Many solutions available knit together separate systems for contractor management, time & expense handling, administration, and financial management. However, finding a single, comprehensive back-office palatform can significantly simplify your processes and reduce the risk of errors or inefficiencies.

Dan's tip: We believe our back-office with EoR integration is uniquely positioned to address these challenges. Still, regardless of the platform you choose, prioritise a seamless, secure, and compliant system that supports weekly contractor payroll (a norm in the US that ensures contractors are happy and remain consistently on the books) and also regular weekly recruiter margin payments.

Expanding your recruitment business to the United States offers immense opportunities, but it requires meticulous research, preparation and strategic planning. By ensuring you address all the legal complexities, understand the cultural nuances, secure funding wisely, and streamline your operations effectively, you can position your UK-based recruitment business for success in the fast-growing and competitive US market.