USA Employee Benefits

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What are the Employee Benefits in the US?

Happy and satisfied employees make your business thrive and lead to even better profits. However, the specific benefits for employees in Italy might not all be familiar to you yet. By using our PEO and EOR service we can provide compliant labor contracts for employees in the USA, including local benefits.

When expanding your company’s presence in a new country, you need to ensure compliance both in your employment contracts and benefit guarantees. These involve social security contributions, sick leave, health insurance, and unemployment, to name a few. 

Workers’ compensation programs in the US vary between states and sectors; employers and employees have to deal with their relevant state’s rules. Many states have their own versions of laws, while case law can also apply where issues are not covered by mandatory regulations.

Our guide will explain what benefits and employee compensation are guaranteed, and what can be modified, for any employer who wishes to expand their business into the USA.

What Compensations Laws exist in the US?

Workers’ compensation programs vary between states and sectors and employers must comply with the relevant federal and state laws, as the US Department of Labor’s Office of Workers’ Compensation Programs do not have a role in workers’ compensation schemes as applied by individual states.

The US employment market is less regulated than most in some areas. For example, The Fair Labor Standards Act (FLSA) does not require payment for vacations, sick leave, federal or other holidays. These benefits are matters of agreement between employer and employee. However, many states have their own laws on sick leave.

It is still vital to fulfil responsibilities to your employees over those benefits, compensation and minimum requirements that are governed by law. Do not take the risk of ignoring them. Compensation and benefits include:

  • National Minimum Wage: The federal minimum wage is US$7.25 per hour, but this varies across the states. California has different minimum hourly rates depending on the size of a company - US$14 per hour for more than 26 employees and US$13 per hour for employers with fewer staff. In 2021 Hawaii had a rate of US$10.10, Illinois US$11 and Washington DC US$15.20 per hour. Georgia has a minimum of US$5.15 per hour, but employers who come under the Fair Labor Standards Act employers must pay the federal minimum of US$7.25. Where employees are subject to both state and federal regulations the higher rate applies.

  • Overtime: This is paid at one-and-a-half times above the usual hourly rate if the employee works more than 40 hours a week on average over a 168-hour period.

  • Maternity and Family Leave: US law does not allow for paid maternity leave. However, the Family and Medical Leave Act (FMLA) guarantees employees can take up to 12 weeks of job-protected leave for pregnancy and child rearing. Only around 60% of workers are eligible. The Act also stipulates unpaid job-protected leave for the serious illness of the employee, spouse, or a child.

  • Termination and Severance Entitlement: Unless terms of notice, termination, and entitlements or ‘garden leave’ are contracted, employees working ‘at-will’ are not usually entitled to a notice period. Eligible employees have the right to continued healthcare coverage for a subsequent period and to receive government unemployment benefit.

    They may be entitled to severance pay according to state laws if it can be proved the employer led the employee to believe they would receive severance.

    ‘At-will’ employment can be terminated by either party without notice but can be unlawful if there was an implied contract, if it violates public policy, federal, state, or local laws, and if it is based on discrimination or retaliation.

    Employers that come under the Worker Adjustment and Retraining Notification Act (WARN) must follow termination regulations if closure forces laying off more than 50 workers at a single site. In this case workers must be given 60 days’ notice. https://iclg.com/practice-areas/employment-and-labour-laws-and-regulations/usa

  • Working Hours and Breaks: The typical 40-hour week comprises five eight-hour days with at least eight hours rest between. Hours exceeding 40 in a 168-hour period are considered overtime. Flexible working hours depends on individual contracts.

    Lunch or coffee breaks are not mandatory and depend on employer / employee agreements, usually do not exceed 20 minutes, and are paid as working time. Authorized breaks are considered part of working hours when calculating any overtime. Some states have their own regulations for breaks or meal periods.

Social Security in the US

Social Security is run by the federal government, using taxes paid into a trust fund to provide benefits to people who are eligible and provides support for such as retirement and disability.

The fund builds from taxes withheld during employment. The employer withholds tax from the employee to comply with the Federal Insurance Contributions Act (FICA). This federal payroll (employment) tax is used to fund Social Security and Medicare.

Employee Social Security Taxes

  • OASDI, known as ‘social security tax’ - 6.20% (On first US$142,000 of earnings)
  • Hospital Insurance, known as ‘Medicare’ - 1.45%
  • Surcharge for individuals earning over US$200,000 and joint filers over US$250,000 - 0.9%

Employer Payroll Taxes for Social Security

Paid under the Federal Insurance Contributions Act (FICA).

  • OASDI, known as ‘social security tax’ - 6.20% (On first US$142,000 of earnings)
  • Hospital Insurance, known as ‘Medicare’ - 1.45%

Statutory Employer Costs in the US

  • Corporate Tax: This is set at 21% for 2021 (having been cut from 35% in 2017 in the Tax Cuts and Jobs Act) and is levied against the profits of resident corporations in the US.

    This may change as in the Biden Administration’s 2022 budget plan announced in May 2021 it was proposed to increase the rate to 28% at the federal level. Individual states also apply corporate taxes at varying rates up to 11% in addition to the federal rate.

  • National Minimum Wage: The federal minimum wage is US$7.25 per hour, but this varies across the states. Where employees are subject to both state and federal minimums the higher rate applies.

    For example, Georgia has a minimum of US$5.15 per hour, but under the Fair Labor Standards Act (FLSA) employers must pay the federal minimum of US$7.25.

Other statutory employment costs include:

  • Federal Unemployment Tax (FUTA) – which is paid at US$42 per employee.
  • State unemployment tax – which varies between states.
  • Workers’ insurance compensation – varies from state to state and professional liability coverage may be required.
  • Health insurance, unpaid family leave, and medical leave – Under federal law, employers with more than 50 staff must provide this for their employers. Some states enforce paid leave laws, with the burden on the employers.

What Benefits are guaranteed in the US?

Federal and state laws cover employee benefits and entitlements in the United States, although there are fewer mandatory regulations than generally apply in other nations. Workers’ compensation programs vary between states and sectors and employers and employees have to deal with their relevant state’s rules.

The US Department of Labor’s Office of Workers’ Compensation Programs do not have a role in state workers’ compensation schemes.

Employers must provide certain employee benefits as mandated by federal, state, or local statutes. These include:

  • Social Security, Medicare: These are funded through the Federal Insurance Contributions Act (FICA), which is a federal payroll (employment) tax used to fund Social Security and Medicare. Both employer and employees contribute, with the employer contributing 6.2% for Social Security and 1.45% for Medicare.
  • Unemployment insurance: To assist workers who lose their jobs.
  • Workers’ Compensation Insurance: This financially supports employees unable to work due to injury or illness.
  • Health Insurance: This is a guaranteed benefit from companies with more than 50 employees, along with up to 12 weeks unpaid leave during a 12-month period for qualifying medical or family reasons.
  • National Minimum Wage: This is set at US$7.25 per hour. Rates vary between states, but the higher rate must always apply.
  • Overtime: Hours above 40 per week are paid at one-and-a-half times the usual hourly rate.
  • Maternity Leave: The Family and Medical Leave Act (FMLA) ensures that mothers can take up to 12 weeks of job-protected leave for pregnancy and child rearing, if eligible.

What Restrictions exist for Benefits and Compensation in the US?

  • Unpaid Leave: To qualify for 12 weeks unpaid leave, the employee must have worked 1,250 hours over the previous 12 months; must work for a minimum of 12 months at a location with more than 50 employees.
  • Unemployment Benefit: Rules for qualifying for Unemployment Insurance vary between states and largely depend on the applicant’s qualifying earnings from their previous employer.

Health Insurance and other Benefits in the US

Health insurance may include a group health plan, established, or maintained by an employer or an employee group organization such as a union. These provide medical care for participants or their families.

An employer must make monetary contributions under the Federal Insurance Contributions Act (FICA) – this obliges them to a federal payroll tax, which is used to fund Social Security and Medicare for the employee. They must match similar percentage contributions from their employee.

The Affordable Care Act (ACA) can penalize employers who do not comply.

Apart from the few mandatory benefits applying to US employment laws – such as minimum wages, overtime and working hours – employers may also offer pension plans, childcare, life insurance and flexible working hours.

Benefit from our advice!

Legally protected compensation and benefits are an essential factor in ensuring contracts comply with the US’s various labor regulations at federal and state level. Bradford Jacobs ensures compliance with these crucial requirements to avoid delays in becoming operational.

Contact us for more information today.