The Medical Link | Avoiding Costly Mistakes: Top U.S. HR And Benefits Compliance Pitfalls For Foreign Companies

Expanding into the United States offers exciting growth opportunities—but it also introduces a complex web of employment laws, tax obligations, and employee benefit expectations that can trip up even the most experienced international companies.

If you’re looking to enter the U.S. market, understanding the most common HR and benefits compliance pitfalls is crucial. It can help you avoid costly missteps and build a strong, compliant foundation from day one.

1. Misclassifying Workers (W-2 Vs. 1099)

In many countries, the difference between full-time employees and independent contractors is straightforward. In the U.S., it’s a legal distinction with tax and liability implications. Misclassifying employees as contractors (1099) to avoid payroll taxes or benefits can lead to IRS penalties, back wages, and audits.

Tip: When In Doubt, Use The IRS’s Guidelines Or Consult A U.S.-Based HR Expert To Properly Classify Workers.

2. Ignoring State-Specific Employment Laws

The U.S. is a federal system, meaning employment law isn’t just national—it varies state by state. Requirements around paid sick leave, minimum wage, disability insurance, and termination processes can differ significantly between California, Texas, and New York, for example.

Tip: Always Review The Laws In The State(S) Where Your Employees Will Be Based. A “One-Size-Fits-All” Approach Won’t Work Across The U.S.

3. Failing To Offer ACA-Compliant Health Coverage

If you employ 50 or more full-time employees in the U.S., you may be considered an “Applicable Large Employer” (ALE) under the Affordable Care Act (ACA). That comes with obligations to offer health insurance that meets minimum standards—otherwise, you could face penalties.

Even smaller employers often need to offer health benefits to stay competitive in the U.S. market, where employer-sponsored health coverage is the norm.

Tip: Work With A U.S.-Based Benefits Broker Who Can Guide You Through ACA Compliance And Carrier Options.

4. Overlooking COBRA & Continuation Coverage

COBRA (Consolidated Omnibus Budget Reconciliation Act) requires certain employers to offer continued health coverage to employees after job loss or qualifying events. Failing to offer COBRA when necessary can result in daily fines.

Tip: Partnering With A Broker Or Administrator Familiar With COBRA Can Help Ensure These Obligations Are Met Properly.

5. Not Documenting Policies Or Employment Agreements

Unlike in many countries, the U.S. generally follows “at-will employment,” but that doesn’t mean you should skip documentation. Handbooks, offer letters, and clear company policies are essential for managing employee expectations and protecting your business.

Tip: Develop A U.S.-Specific Employee Handbook And Onboarding Process, Even If You Only Have A Few Hires.

Final Thoughts

The U.S. is one of the most dynamic and opportunity-rich markets in the world—but its employment and benefits landscape can be a minefield for global companies. Whether you’re hiring your first U.S. employee or expanding operations in multiple states, working with experienced U.S.-based HR and benefits partners is key to staying compliant and competitive.

Need help navigating your U.S. expansion? A trusted benefits or PEO broker can offer you invaluable guidance through setup, compliance, and scaling with confidence. Reach out to The Medical Link to learn more!

Compliments of The Medical Link – a member of the EACCNY