Whether you're a global startup entering the US market or a domestic firm expanding across states, there are streamlined solutions to help you build and grow your US team.
US payroll services and professional employer organizations (PEO) can alleviate the administrative and compliance challenges associated with US expansion.
In our latest webinar, we explored the complexities and strategies for expanding your team in the US. The session, Hiring in the US: Pathways to Expansion for Growing Teams, featured insights from industry experts Sasha Medvedovsky, Co-Founder & CEO, Diversion Company, and Shannon Schiltz, Operating Partner at Andreessen Horowitz, alongside Deel's Director of PEO Solutions, Philip Alvarado.
Missed the live session? Watch the full webinar or check out this detailed recap to learn some valuable insights that can help you enter and expand across the US.
Speakers
Shannon Schiltz, Operating partner, Andreessen Horowitz Sasha Medvedovsky, Co-Founder & CEO, Diversion Company Phillip Alvarado, Director, PEO Solutions, Deel
What makes US expansion so complex?
To kick off the session, Shannon Schiltz explained the layered requirements and processes involved in US hiring, emphasizing the need to understand both federal and state laws. The takeaway: Even if you’re a US company, it can still be overwhelming.
“When we see companies coming into the US, a lot of times they're focused a lot on what the federal laws are and how to stand up a corporation inside the US or an entity inside the US. The complexity really starts when you start hiring folks,” said Shannon. “Expanding into the US—and if you're going into multiple states—it would be like a US company expanding into Europe. Except in Europe, each country is different. In the US, all 50 states are different.”
Understanding the nuances of the laws in each state becomes quite challenging when it comes to taxes, compliance requirements, and leave entitlements—anything that touches your employees varies by state.
“When we see companies say they're expanding to the US, we have to ask some follow-up questions: What state in the US? Where are you thinking about locating your employees? Because that definitely determines what the payroll laws will be, what the tax laws will be, compliance, all of those different pieces.”
Importance of strategic partners
Sasha shared his firsthand experience with Diversion’s US expansion, noting the critical role of finding a reliable partner like Deel. He stressed the significance of a partner who can handle logistics, compliance, and employee experience, allowing founders to focus on scaling their business.
“For me, it was a first-time experience hiring people in the US. Where do you go? What do you do? There are not many resources for you to understand where to begin,” he said. “[Employees] need to get their paychecks on time, they need to get their benefits, and they need to get the things they are used to getting in any US-based company. Deel has been very helpful in this regard, helping me navigate this and basically taking a lot of the headache off of this process.”
Options for expanding in the US
There are three main ways to enter the US market: hiring independent contractors, using an employer of record (EOR), and using a professional employer organization (PEO). Phillip went on to explain how each of these options can impact your growth and expansion experience.
1. Hiring independent contractors
Hiring independent contractors is a common first step for companies starting off in the US, but it’s not always the most straightforward.
"Hiring a contractor can get tricky,” said Phillip. “If they function as a full-time employee and you terminate them, they might file for unemployment, claiming they were a full-time employee. This can open a can of worms."
2. Using an EOR
Another easy way to expand in the US market is by using an EOR. In this scenario, you let someone else take on the liability of hiring the employee full-time for you, and you can leverage them as your full-time employee.
"Once you have two or three people or want a direct relationship with the employee, you'll need to set up a US entity,“ said Phillip. “Every state is complicated in terms of regulations. How would a founder such as Sasha ever know what he should be paying? He won't know until something goes wrong."
3. Using a PEO
A third way is using a PEO. This involves co-employment and sharing responsibilities to stay compliant. The PEO, in the eyes of the IRS, is the employer of record.
“So many of the founders that I've partnered with are so surprised by what a PEO actually does,” said Phillip. “All you have to do is go into our system and hire that person in that particular state and our PEO services will take care of everything in the background. You don't even know what we're doing for you because you don't have to worry about it."
By joining a PEO, they'll ensure you hire at the right wage in the right state. They’ll also manage requirements like anti-harassment training in California or family leave in New York. And if you hire someone in Pennsylvania, there are local employer payroll taxes. You often don't know what you don't know, especially if it's your first time in the US.
"That's why I personally believe if you're a small organization expanding to the US for the first time, a PEO should absolutely be on your evaluation list,” Phillip recommended.
In-depth insights
Balancing benefits costs in the US
When determining payroll costs in the US, you have to consider all the elements that don’t go into the employee’s pocket, such as workers' compensation, unemployment taxes, federal taxes, and benefits.
“Founders are just mind blown that they're spending six or seven hundred to a thousand dollars a month for this one employee to have health insurance in the United States,” explains Phillip. “That's really why I tell people think long and hard about what you're trying to achieve when expanding to the US because it's going to become extremely expensive very quickly.”
The benefits programs in the US are incredibly complex. As a result, many companies look for a partner that can help identify the right plan in the state that they are operating in. Each state has different requirements around notifications, what you can or can’t offer to employees, and more.
“It’s important to have a partner that has identified what is market-standard for that state, gives you a little bit of purchasing power so you're not paying a huge amount to get benefits for one person in Texas, and can actually ensure you're not setting up a plan that's actually illegal,” said Shannon.
Expanding with flexibility
Sasha’s journey with Diversion illustrated the importance of flexibility in hiring. Initially focusing on finding talent without geographical constraints, Diversion adapted to the complexities of state regulations with Deel’s support, ensuring smooth onboarding and compliance.
“It was nice to have this under one roof as Deel has a joint process with Legalpad and their team is amazing,” said Sasha.
Managing terminations with a PEO
Terminating someone is a difficult decision and impacts everyone within an organization, as well as your team’s culture and productivity. During this time, HR teams and founders should be able to focus on communications and stabilizing their organization, not on the administrative aspects of termination. And PEOs make this possible.
Shannon explains: “Using a PEO really does allow you to think about your organization’s health and how [a termination] impacts the organization rather than thinking through, ‘When do I need to do a final paycheck? What are we doing with benefits? Is COBRA information being sent out in a timely fashion?”
Practical advice for founders
Lean into remote work
During the webinar, speakers highlighted the enduring trend of remote work, with Shannon sharing that remote work has become a permanent fixture, and companies must adapt to hire talent across different states while maintaining competitive and compliant practices.
“We’ve walked through the door of remote work and there's really no walking back out of it,” she said. “If you want to build a successful, super high-growth, ability-to-execute organization, remote work is just a part of it nowadays."
Think outside the tech hub box
While many founders may naturally gravitate to talent hubs like San Francisco or New York, Philip discussed the financial benefits of remote hiring and exploring talent outside major areas.
“If you're just looking at San Francisco, not only is it expensive, not only do you have way more compliance that you have to take care of, but you're competing with every other tech company in the Bay Area versus being the biggest fish in town in a smaller area or an outsourced area,” he explained. “The talent that you could get in San Francisco is going to cost you $140,000 for a great engineer but that same talent you can get for $90,000 in Nashville or in Bismarck.”
Set clear objectives
Philip advised founders to define their goals clearly before expanding. Whether testing a new market or scaling operations, understanding the end goal helps in choosing the right hiring strategy, be it EOR or PEO.
“What are you trying to accomplish?” asks Phillip. “Are you looking to test out a market? Because if you're testing out a market, why would you go and set up a full-on entity in the United States?”
Where you hire your first employee may also determine your expansion trajectory. Founders often end up hiring clusters of employees in a few states, instead of hiring across all 50 states with fewer employees in each area. Doing so reduces the complexity of managing payroll, state taxes, and other responsibilities, but still leaves room for growth.
“Once you do your first handful of hires in the US, you probably are evolving your strategy as to where you're going to look for talent,” said Shannon.
Focus on culture and development
Shannon emphasized the importance of prioritizing company culture and employee development. Hiring an HR leader who can foster a strong organizational culture is more beneficial than one solely focused on compliance.
“You have to hire the best people to build the best company. You have to have the flexibility and be super competitive in a market where people just expect certain things when they're being hired in the United States.”
To further build out a positive company culture, consider hiring in hubs.
“From a culture standpoint, if you're going to hire teams, it's super helpful to have a hub in a specific state,” explains Shannon. “You can scale a lot faster and you help build connections, versus having a customer success team that's in six different states."
Expand across the US with Deel
For those looking to expand their teams in the US, partnering with a reliable PEO like Deel PEO can streamline the process, ensuring compliance and allowing founders to focus on building a successful, high-growth company. Learn more about Deel PEO or book a 30-minute product demo with an expert to learn about your expansion options.
Disclaimer: This content is for informational purposes only and should not be considered legal or tax advice. Consult a tax specialist or legal counsel for guidance.
