Differences in UK vs US Work Culture Before Doing Business in America
Although we might speak the same language, the US employment landscape and culture differ considerably in comparison to the UK. This means doing business in America can seem like quite a challenge at the beginning. In this blog, we cover UK vs US work culture and the employment landscape in the US, including US worker classifications, compensation packages and employment contracts – so you can approach the US business environment confidently.
Classification of Employees in UK vs US
Business terminology used in the UK vs US is very different. The classification of employees in the UK vs US is a great example. Within the US there are three main types of worker classification: W-2 employee, Corp-to-Corp and 1099.
W-2 Employee Meaning
A typical employee in the US is often classified as a ‘W-2 employee,’ which is similar to the PAYE classification of employees in the UK. What does it mean to be a W-2 employee? While different agencies of the US government define “employee” in different manners, and employee is considered anyone who performs services, and as a matter of economic reality, follows the usual path of an employee and is dependent on the business which they serve.
The term, “W-2,” derives from the Form W-2, Wage and Tax Statement, a federal Internal Revenue Service (IRS) form which employers are required to furnish to W-2 employees showing the wages paid and taxes withheld for the year for each employee.
Essentially ‘W-2’ is a type of classification for a part-time or full-time employee in the US, whether permanent or on a temporary basis. In simple terms, it means the worker is on their employer’s payroll who is withholding their taxes. In contrast to the UK, this US worker classification may also include health care benefits where required by applicable law, as healthcare is not funded by the US government.
Overall, the characteristics you would typically associate with a UK ‘employee’ is referred to as W-2 employee when doing business in America.
Types of Independent Contractors in the US
The other two primary types of worker classifications in the US are 1099 and Corp-to-Corp (C2C), which are two types of independent contractors. Independent contractors in the US are not employed by any other business, they are self-employed.
Corp-to-Corp (C2C) Contractor
A C2C is almost like a limited company contractor in the UK, operating through a corporation or an LLC.
1099 Contractor
The other type of Independent Contractor in the US is a 1099, which can be referred to similarly as a freelancer or a sole trader. As independent contractors, 1099 and C2C workers are responsible for remitting their own taxes and providing themselves with their own benefits and insurances, including business insurances.
What’s the Difference Between a Corp-to-Corp and 1099?
The main difference between a C2C and a 1099 is that a C2C is operating through a business structure, like a corporate entity, and that sole trader is a sole proprietor of their person; 1099 contracts requires a business that is unincorporated.
C2C workers are usually utilized for very niche roles such as high-level senior workers. In comparison, 1099 workers are more likely to be gig economy or blue-collar roles. As such, typically, a 1099 contractor will likely be a day-by-day laborer in the construction industry.
Another example of a 1099 in the gig economy is a role like a wedding photographer. This worker classification refers to freelance roles that turn up to a site, and work for a few hours for one client. They'll usually charge a specific flat rate for a one-time service.
To learn more about the classification of employees in the UK vs US, our blog and infographic on the difference between W-2, 1099, and Corp-to-Corp workers in the US provides more detail.
Engaging Contractors in the US vs UK
‘Everyone is a W2 by default’
When engaging contractors in the US, most contractors fall under the worker classification of W-2 employee. The IRS and Department of Labor state that everyone should be considered a W-2 employee by default until proven different. The remaining number of contractors in the US are made up of 5-10% C2C engagements and around 15-20% engaged as 1099 in the US.
If you are familiar with IR35 legislation in the UK, the US equivalent is more advanced and is harder to navigate. This means when you are engaging contractors and classifying a worker in the US, there will be federal assessments, as well as local, state assessments to consider.
For example, there are some states where there are 6 different assessments that need to be satisfied before classifying a worker as a Corp-to-Corp in that state.
Get Contractor Classification Right in the US to Avoid Penalties
Contractor classification is a means of deciding whether a worker is operating as an employee; are they performing the same role as other employees in a business, or are they independently engaged in a business of their own? Classification of a worker is an integral aspect of employment in the United States as there are significant penalties for misclassification, so it is important to understand the different categories listed earlier in this blog.
Avoid Misclassification of Employees as Independent Contractors
Many high-profile businesses have wrongly misclassified US employees as independent contractors in the past that should have been classified as W-2s, leading to huge financial penalties.
If a contractor's role indicates that they embody the aspects of a W-2 employee, we would recommend classification as a W-2 employee, even if the contractor wishes to be classified through a C2C structure. In the UK, HMRC only requires the backdated taxes if a worker is outside of the IR35 and they should have been inside I3. Whereas in the US, if you misclassify a contractor through a C2C or 1099 structure, the penalties can include backdated taxes, benefits, and even criminal penalties in extreme circumstances.
Misclassifying employees in the US also comes with reputational damage for your business. So, in order to avoid misclassification of employees as independent contractors, at PGC we always recommend to our international recruitment clients doing business in America, to go with W-2 first whilst you build knowledge and contract book in order to mitigate risk.
How do Employment Contracts Differ in the US vs UK?
UK vs US Employment Contracts - At Will Employment
Another main UK vs US work culture difference to be aware of is the US concept of at-will employment. In the US, an employment contract is at-will, meaning that generally, and unless otherwise specified in an employment agreement, both employees and employers can terminate the employment contract at any given time without cause and without notice. Provided the reason for termination is not prohibited by law. Though not required, most companies typically will request a two-week notice period.
This is relevant to US employment contracts for both permanent and contract engagements.
How Does US at will employment vs UK System Benefits Recruiters?
As a result of at-will employment, the US is a far more transient market. In the UK a candidate may have a longer notice period, in the US generally it will be two weeks. Meaning that a recruiter will have a shorter period of time to place a candidate in a role, however they will receive payment or commission a lot more regularly than in the UK,
US at-will employment vs the UK system is extremely valuable for recruitment businesses due to the shorter turnaround times to place candidates. The recruiter can add much more value to a US client, as they need talent immediately to fill roles workers quickly left with little notice. As a result, the fees are higher because they are driven by that transient US marketplace.
How Often do Americans Change Jobs vs UK?
The average American tends to stay in a job for a much shorter time period in comparison to the UK, which is typically much longer. Career longevity is one of the most important factors when employing candidates in the UK. Typically, the amount of time a candidate has remained in a job can often have a positive or negative impact on the application process.
In the US, a smaller time period in a job, such as 1-2 years, is satisfactory. This is due to the nature of ‘at-will’ employment and culture. In comparison, in the UK, if a candidate has remained in a role for around 3-4 years, this is extremely desirable to an employer. Often 1 year would be deemed as job hopping in the UK at not as frequent vs the US, unless on a temporary contract basis.
Differences in UK vs US Holiday Leave
Paid Time Off in the US
US holiday leave is referred to as ‘Paid Time Off’ (PTO) (annual leave in the UK). In the US, there is generally no legal requirement on a federal or state level for employers to provide PTO. Whereas in the UK, employees are legally entitled to five and a half weeks paid holiday, including public holidays.
In the US, an employer can generally decide how much holiday leave to provide their employees. According to the US Bureau of Labor Statistics, the average number of paid vacation days is 11 days. This can increase depending on the length of service. In the UK, almost all people classified as workers are legally entitled to 5.6 weeks’ paid holiday (28 days) a year (known as statutory leave entitlement or annual leave). A UK employer can also include bank holidays as part of this annual leave entitlement.
When you compare UK vs US work culture styles, employees in the US are less likely to use all their vacation days. Therefore, when hiring employees in the US, if you offer more paid time off days in your allowance to match your UK policy, this will be highly attractive to a US employee who is familiar with less.
UK vs US Bank Holidays
Private employers in the US are generally not required to provide paid time off for any federal holidays. Rather, employers can determine what federal holidays their employees receive. The typical federal American holidays (at the discretion of the employer) are listed in the graphic below.
UK vs US holiday leave differs greatly. Employees in the UK benefit from extra days off in the form of bank holidays (federal holidays in the US). In the UK, employees get an Early May Bank Holiday, a spring bank holiday, and Boxing Day (the day after Christmas), to name a few holidays that are not offered in the US.
UK vs US Paid Sick Leave Entitlements
In the UK, employees are eligible to 28 weeks of paid sick leave. In the US, unless otherwise required by applicable state or local law, it is at the employer's discretion whether employees can receive paid sick pay. For example, California law mandates that employers provide a minimum of 24 hours of paid sick leave every year, with some Californian localities requiring additional hours of paid sick leave in addition to the state’s 24-hour requirement.
As employment laws differ greatly in the US vs UK, many international companies use a US Employer of Record like PGC to engage their employees to ensure they remain compliant with paid sick leave requirements and much more.
According to the U.S. Bureau of Labor Statistics, 78% of US workers have an arrangement with their employer to receive paid time off in the event of sickness. Often many Americans also take sick leave even when not ill due to having less paid time off days in comparison to the UK.
An example of this is the so-called ‘Super Sick Monday’, which is the day after the Superbowl, where it has been estimated that 26.6 million people were likely to miss at least some work, with 18.7 million employees not planning to go to work at all.
How Long is Maternity Leave in US vs UK?
Another question clients doing business in America frequently ask is “How long maternity leave in the US?” Federally, women are not entitled to any paid maternity leave in the US, unless otherwise provided by applicable state law. There are eight states in which maternity leave will fall under state paid family leave laws.
Most employers are subject to the Family and Medical Leave Act (FMLA), which provides eligible employees with up to 12-weeks of unpaid, job-protected family and medical leave. This includes unpaid leave for certain medical conditions an eligible employee or their immediate family may have, including to care for a newborn child. Several states have their own versions of unpaid, job-protected family and medical leave, as well, so it is important for employers to determine their obligations and coverage under these state laws, as well.
Do You Have to Offer Health Benefits in America to Workers?
Healthcare in the United States is not provided by the government vs the UK where it is universally provided via the NHS, regardless of whether you are employed or not in the United Kingdom. In the US, covered employers must offered health benefits to employees who are contract or permanent and work over 30 hours per week. Typically, it is usually around 50% of the least expensive plan that will need to be covered by the employer.
Employer-sponsored healthcare benefits are often a key factor for candidates when deciding whether to apply to a job in the US. Therefore, when compiling together a competitive package for employees in the US, it is extremely beneficial to include healthcare and medical contributions in order to make a role attractive.
Offer quality healthcare plans to US employees via a US employer of record
Offering employees benefits when doing business in America from a UK background can be a lot to get your head around. That’s why many UK companies operating in the US use an Employer of Record (EOR) to provide eligible workers with healthcare benefits on their behalf.
By using an EOR like PGC, you can offer all eligible employees and contractors premium healthcare and ancillary benefits coverage. You don’t have to source your own plans, and can instead offer your US employees various levels of healthcare coverage, which they can personalize with premium medical plans and ancillary options.
Forming Compensation & Benefits Packages for US Employees
What makes up a competitive US compensation structure? Due to the differences between the UK vs US work culture, an attractive US compensation package will also differ from what you offer in the UK. Here are some items you should include when forming your compensation package for US employees.
Competitive salaries according to the state and city you’re operating in
When doing business in the US, you will have to research the average salary according to the sector and state you are operating in to determine what is culturally normal to provide US workers. According to Fifteen West, compensation models have changed vastly over the last 12 months, with a 71% increase in salary rates across the board in the US. There has recently been a cultural shift towards higher salary expectations. Most workers in the US expect their salary to increase each year, and if it doesn’t, they might leave the position.
Commission structures and sign on bonuses
Another great way to attract and retain US talent is through commission structures and by offering sign on bonuses. It is also becoming more common for employers in the US to display the salary range in job advertisements to attract candidates. With more states legalising pay transparency in job ads, our blog covers this and other key employment laws you must be be aware of when studying UK vs US work culture before doing business in America.
Employee Health Benefits in the US
Employee health benefits are one of the most vital components in an employee compensation package and often are a deciding factor when candidates are applying for jobs. They can also help improve employee productivity, engagement, and retention.
A study by the Society for Human Resource Management found that 90% of survey respondents cited healthcare as an extremely or very important employee benefit. Therefore, if you're putting together an employee compensation package, it's not just the salary and commission you should be thinking about; factors like PTO, healthcare benefits, insurance and 401k are vital conditions a job seeker will look for.
Include 401k to make your employee compensation plan more attractive
A 401(k) is a ‘feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to an individual account under the plan’ according to the IRS. Known as a pension plan in the UK, a 401k plan is not legally required to offer employees in the US like it is in the UK. However, Americans are now prioritizing items like 401k and healthcare when choosing a job rather than just the money they can earn.
How do Pensions Work in the US?
401k Explanation
In the UK, a pension plan or contribution to your pension is expected when employees start a new role. How pensions work in the US is slightly different vs UK, as there is not any federal requirement to provide a pension in the US. There are, however, some states that require employers to provide their employees with retirement saving opportunities, known as state-mandated retirement plans.
As such, though generally not required, many of PGC’s international clients doing business in the US often offer an employer-sponsored match on their 401k which can be anywhere from 3-6%. Offering a 401k in an employee package in the US will make your internal roles more attractive.
UK vs US Work Culture Differences When Communicating
When doing business in America, you need to be aware of the UK vs US work culture differences. Being aware of different nuances will give you the credibility and understanding to communicate more effectively with US clients and candidates. UK vs US work culture differences can include spelling, communication styles, typical break times, and much more.
For example, working hours in the US differ to the UK as “coffee breaks” or “tea breaks” are not mandatory or required by federal laws, according to the US DOL. Subsequently, Americans are more reluctant to take any breaks throughout the workday. Some states, such as Arizona, Georgia and Texas do not have any lunch break laws, paid or unpaid, meaning employees are not legally entitled to a lunch break.
However, this does not mean employers will not offer this, and many still do, in order to improve their employee wellbeing and retention figures. Other states, such as California, require meal and rest breaks. In comparison, UK employees often take between 30-60 minutes lunch break and are legally entitled to a 20 minute break allowance if they work more than six hours a day.
In the US work culture, it is often found that Americans will place high value on hard work and strong work ethic, taking less vacations and working longer hours. Often, Americans believe that people will achieve results based on how hard they work and, once those results are met, they will take personal credit for the accomplishments.
Additionally, communication in US work culture vs the UK is a lot more direct. Americans value clear and factual communication and are a lot more straight to the point. Whereas in the UK, communication often tends to be a lot more indirect, and people will avoid conflict and take measures to remain polite throughout discussion.
Why is it Important to Know the Differences in UK vs US Work Culture When Doing Business in America?
If you plan on hiring workers in the US and have a UK business background, it is very important that you educate yourself on the differences between UK vs US work culture. You must be aware of the items we went through in this blog including; the differences in worker classification, employee expectations when offering benefits packages, the way you communicate, and much more.
If the UK vs US work culture differences are too much to understand when trying to grow your business in the US, PGC are here to help. As an US Employer of Record, we can facilitate the employment of your US employees in compliance with applicable federal, state, and local laws, by providing benefits and other entitlements such as paid sick leave where applicable, processing payroll in accordance with jurisdictional law, and much more – so you can focus on growing your business instead.
Disclaimer: The information provided here does not, and is not intended to, constitute legal advice. Instead, the information and content available are for general informational purposes only.