America has always been the Land of Opportunity, and never more so than today. The global economy has created opportunities for foreign companies to enter the massive US market, with or without an entity. So it’s not surprising that Papaya’s latest seminar on expanding to the US or Canada drew a larger crowd than expected.
The seminar featured Jeremy Wastall, Chief Commercial Officer at Precision Global Consulting (PGC), Papaya’s EoR (employer of record) partner for the US and Canada. He presented a variety of tools companies can use to hire employees legally in the US, focusing primarily on EoR, which allows companies to build a workforce in America in the shortest possible time.
“America is the biggest market in the world,” Jeremy said. “California is just one state, and its GDP is the size of the UK. The market that you are going into is enormous but so are the complexities you’ll encounter. If you want your company to become a unicorn – get a billion-dollar valuation – the US is the place where you can do that.”
Jeremy noted that Israeli companies have more listings in the American stock exchange than any country other than the US and China. “The common approach, he said, “is to incubate the business locally in Israel with a small development team, prove early product/market fit, and then build a sales and marketing organization abroad.”
The process starts, he said, by considering four important areas:
- Communications – expanding abroad means that teams will no longer be based in one place. Maintaining strong lines of communication for distributed teams requires careful planning.
- New competition – the same reasons you want to expand to the US also make it attractive to your competitors, including many companies that are not direct competitors in your local market.
- Preserving your culture – your company has its own unique identity and you will want to preserve that in the new location. Culture can be expressed in numerous ways, including workspace, hiring profile, activities, and more.
- Build a War Chest – An oversees expansion is likely to cost more than you anticipate. Surprise expenses almost always occur. In the US, “you’re almost guaranteed to get a lawsuit at some point,” Jeremy said.
He suggested researching the local culture, the regulatory framework, and the legal structure of any new market.
“Tax is something you really need to be aware of,” he said. “You’ll realize as time goes on that everything in the US leads back to taxes.
“There are federal taxes, state taxes, and local taxes. You need to be aware of something called tax nexus. If you’re based in California but you’re selling your software across all of the US, and you sell a lot in NY, at some point you’ll create a tax nexus, which means you have a presence by virtue of how much tax you’ve created there. So you’ll need to also register your business there.”
Using the Tools of Expansion
He noted that there are three primary tools for US expansion – PEO, EoR, or Payroll.
The payroll option means registering the company in the US as a legal entity. That would place all of the liability for the business and its employees on the company. Then you can then outsource your payroll to a supplier “and they would simply process the payroll from your bank account to your workers.” However setting up a legal entity requires resources and efforts and should be done at the right stage for a company
Another option is the PEO (Professional Employment Service) which in the US means something different than it does in the rest of the world. In the US, using a PEO still requires your company to open a legal entity and assume liability, and the PEO would handle the administrative functions of workforce management.
“In the US, a PEO is like an outsourced back office,” Jeremy explained. “They will co-employ your workers with you. You are ultimately responsible for that worker, but because they are co-employing, they will take some of the responsibilities, such as payroll, or insurances, or medical benefits, workers compensation.
“If something happens, it’s still your responsibility. As an example, one of our clients came to us from a PEO, and the PEO hadn’t actually paid taxes to the IRS. They should have, but they didn’t. When the client came to us, they still owed the taxes because they are the ultimate employer.”
The third option is to work with an EoR, such as PGC. “We are an employer of record. What that means is, we are employing the workers. The employees are our employees, not the client that sent us the details of the worker.
“Whatever happens, the IRS will come after PGC if the taxes are not paid. A PEO will help handling contracts, and the contracts will still be between you and the employee. It means at the end of the day, you’ll be responsible. With PGC, the contract is going to be between the employee and PGC, so we are the ones who will be legally responsible.
“If you are trying to expand your business, one of the things you’re going to need is people on the ground. But you might not want to open yourselves up to all the complexities. We are actually paying the workers ourselves and then providing an invoice to the clients based on that. We are registered in all 50 US states and every province of Canada. We are the employer, so we need to be registered.
When hiring, it is essential to be sure that the person has a right to work in the US. In most cases, that means filling out an I-9 form, the standard proof of employment eligibility in America. There are also a number of visa options. However, the current climate in the US is oriented towards hiring US citizens.
“With a population of 327 million and immigration under the spotlight, our recommendation is to focus on local talent,” Jeremy said.
Papaya wishes to thank Jeremy Wastall, Janelle Pol, and Shatana Fernandez of PGC for the outstanding and informative seminar.