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Top Compliance Mistakes Made by Companies Entering the US

January 7, 2022

If you’re expanding your business into the US, there are some common compliance mistakes that you want to make sure to avoid.

Here are the top compliance mistakes that some companies make when entering the US:

Paying employees under the table

Some companies pay their US employees under the table, without reporting it to the Internal Revenue Service (IRS). This is illegal–you have to file with the appropriate local authorities and pay all relevant taxes on compensation for your US employees and report it to the IRS. If you don’t report your wages to the IRS, and if your workers do not file on their end appropriately, your workers might face fines and even potential imprisonment, and your company might be barred from doing business in the US.

Misclassifying employees as independent contractors

Some companies misclassify their US workers. They classify a US worker as an independent contractor when they actually are treated like an employee and should be classified as an employee, with the employer exerting control over what the worker does and when. Misclassifying employees is a form of tax avoidance, since employers must withhold and pay income taxes, Social Security taxes, Medicare taxes, and unemployment taxes on wages paid to employees, but not for independent contractors. Misclassifying an employee as an independent contractor comes with expensive penalties.

Filing incorrect tax returns

Some companies file incorrect tax returns to the IRS. They underreport sales or make other mistakes. Filing incorrect tax returns to the IRS leads to penalties.

Failing to register your business in certain states

You’ll need to register your business in any state where you’re doing significant business, including hiring an employee. If you have employees in California and Texas, for instance, you’ll need to have your business registered in both California and Texas. This includes states in which your employees reside, even if the employees moved after they started employment.

Not buying insurance

Your business will need insurance to protect itself from litigation. General liability insurance might be good to buy, to protect your business from litigation related to your business operations. You might also need to buy workers’ compensation insurance, to give benefits to your workers when they become sick. There also are more specialized forms of insurance that your company can buy to protect itself.

Violating privacy laws

There are a variety of privacy laws in the US, including HIPAA at the federal level and state privacy laws in California and New York. A number of states ban employers from asking prospective employees about their salary history. Although it might be common in your home country to ask prospective employees about their previous salary or even require paystubs, that is not common in the US, and it is often illegal. Many foreign employers must also be aware of possible federal violations as they vet employees with processes such as background checks, as companies must inform employees of background checks beforehand. 

Violating anti-discrimination laws

In the US, it is illegal to discriminate against a job applicant or employee for their race, religion, gender, national origin, age, disability, or genetic information. This is something to keep in mind because as employers go through typical vetting processes, common practices like reviewing employees’ social media can be a landmine of anti-discrimination breaches, as information regarding religious affiliation, gender, and sexual identification are often displayed. 

US labor laws can be unwieldy, and coupled with daunting tax laws and privacy regulations, such matters can eat into the precious window of time young companies have to gain momentum in a competitive market such as the US. In addition, common employment principles such as at-will employment only apply to a limited extent.

Given the sheer number of potential compliance mistakes which can derail tech entrants, it is important to have a local partner in the US to help navigate these complexities. Alariss’ mandate is to save global companies the overwhelming compliance burden and preempting these pitfalls so that our partners can focus on business operations and achieving their growth targets. Just like the companies we serve, Alariss is adept and agile, balancing addressing the specific needs of our global partners, including recruiting and onboarding, while maintaining rigorous compliance measures. And unlike most enterprise solutions, the Alariss team is well versed in working with startups and high-growth companies, cognizant of bottlenecks and able to address them proactively, side by side with our global partners. To partner with Alariss, get started today.

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