What employment structures exist?

Employment structures in the USA are also different. It is not uncommon for companies to “outsource” the HR administration (payroll, employee benefits) to a third party, producing what are known as “co-employment” arrangements.

For example, you can begin business in America without needing a physical entity, instead using Employer of Record (EoR) solutions.

EoR is a quick-to-market, mitigated risk solution that essentially removes any liability from the employer, taking care of anything from payroll management, legal compliance, tax, benefits administration, HR support, and local representation.

As your business grows and scales, you may look to graduate from the initial EoR solution to a Professional Employer Organization (PEO).

This approach involves three parties in an employment relationship: the employee, the main company, and a third-party PEO firm that handles payroll administration and employment benefits.

These employment structures have gained popularity due to the following factors:

• The intricate nature of employment laws in multiple states necessitates specialized knowledge of state-specific regulations.

• The substantial costs associated with providing employee benefits, especially medical insurance.

• The ability to minimize the need for a large in-house HR department by leveraging economies of scale across employers.

Why are employee benefits so complex in the USA?

Another reason EoR and PEO have become so popular when expanding to the US is because employee benefits are incredibly complex. A web of federal, state, and local laws and regulations governs employee benefits. This includes requirements surrounding healthcare, retirement plans, and paid leave.

Specifically, the US healthcare system is renowned for its complexity and costs – managing insurance options such as plan selection and cost-sharing, along with compliance with healthcare laws, can be challenging for employers.

If you’re an employer in the US, though it may not be mandatory (as a small business) to provide employees with basic supplemental healthcare, such as eye care and dental care, most individuals in the US will often expect that the company will offer some sort of supplemental healthcare plan.

Another point of complexity is the expense of healthcare. There is a bare minimum list of basic supplemental health policies that all employers need, but small employers going out to market will find sourcing these benefit plans to be cost-prohibitive.

EoR and PEO make it easier to manage employee benefits

Typically, to deal with this most effectively, businesses will outsource payroll and employee benefits to either an EoR or PEO provider.

As mentioned above, both EoR and PEO solutions exist to remove this layer of complexity, relieving employers of the administrative burden, providing cost-efficient benefit plans that your company may not have been able to source as a stand-alone employer and instead, providing businesses with a solution that takes care of the administration of employee benefits for them.

HSP can help you transition from EoR to PEO without disruption to your healthcare plan, so you can confidently opt for either of these solutions to simplify the world of administrating benefits in the US.