The USA (United States of America) is a country consisting of 50 states primarily based in North America. It has a workforce of 171.3 million people (2023), and a GDP of 27.72 trillion (2023), making it the largest national economy in the world. With a highly developed, mixed economy, the USA generates and earns over 20% of the world’s income, predominantly through industries such as financial services, technology, construction, and healthcare.

With a wealth of stable industries and an open economy promoting flexible business investments, hiring employees in the USA is highly beneficial. It’s important to fully understand employee benefits in the USA to ensure compliance with USA labor law, including benefits such as annual paid leave, maternity leave, working hours, overtime pay, and severance policies.

In this guide, we’ll give an in-depth overview of USA labor law, including both mandatory and supplementary employee benefits that you’ll need to consider as a company employing in the USA. We’ll also provide information on how Remote People can simplify hiring USA employees while remaining compliant with US labor laws.

United States Labor Laws

US labor law sets out the duties and rights of employers, employees, and labor unions in the US. The Major Laws of the Department of Labor cover a range of legislation including social security, working hours, vacation policies, sick leave, and national minimum wage.

The Department of Labor has administered the following acts related to US employee benefits:

  • National Labor Relations Act (NLRA)
  • Family and Medical Leave Act (FMLA)
  • Fair Labor Standards Act (FLSA)

Together these acts protect US employees from exploitation and overworking, ensuring they receive a fair wage and standards for working hours/holiday time.

Some laws in the US are managed at a federal level, including Social Security, health insurance, unemployment insurance, and workers’ compensation.

Employee benefits managed at a state level include paid leave and job protection.

We strongly recommend consulting with legal professionals to ensure strict compliance with US labor law is adhered to when employing in the USA. 

Mandatory Employee Benefits in the USA

The USA has many mandatory employee benefits set out in the acts mentioned above. We’ve detailed below each employee benefit in thorough detail:

Social Security

Social Security in the USA is a federal program that provides a source of income to people who are retired and those who are unable to work due to an illness or disability.

There are four main types of social security in the USA. These consist of:

  • Retirement Benefits: A monthly check that replaces part of a person’s income when they retire.
  • Social Security Disability Insurance: Monthly payments made to people with a disability that limits their ability to work.
  • Supplemental Security Income: Monthly payments to people with disabilities and older adults with little/no income.
  • Benefits for spouses/survivors of a deceased family member: Monthly payments to eligible family members of those who have worked and paid social security contributions before passing away.

Taxes must be paid on up to 85% of social security benefits if people file a federal tax return as an individual, with a combined income of over $25,000.

This is also applicable for joint tax returns, with spouses having a combined income of more than $32,000.

Annual Paid Leave

There is currently no federal law on paid time off in the US, with companies creating their own paid leave policies.

Only 13 states (plus the District of Columbia) have created paid family and medical leave policies that must be adhered to by US companies operating in those states.

The average US worker received 11 days of paid leave each year according to the US Bureau of Labor Statistics. This is largely dependent on years of service, employment sector, and state-level regulations.

Working Hours and Overtime Pay

There is no federal, legal limit on working hours in the US. 

Some states require a paid rest period per hours worked, but this is not monitored at a federal level. 

However, the Fair Labor Standards Act (FLSA) dictates that employees working over 40 hours a week must be paid an overtime rate of at least one and a half times their regular rate for any overtime hours.

Minimum Wage

The minimum wage for US employees is covered at a federal level, which is currently set at $7.25 per hour (2026).

Some states set their own minimum wage laws, with employees generally being entitled to the higher of the two wages when both state and federal wages apply.

Federal minimum wage requirements are depicted in the FLSA. 

Paid Public Holidays

The Federal US Government recognizes 11 public holidays, however, these days vary from employer to employer. 

US labor law does not require that public holidays are paid, however, some employers will offer paid or unpaid vacation time.

  • New Year’s Day (January 1)
  • Martin Luther King’s Birthday (Third Monday in January)
  • Washington’s Birthday (Third Monday in February)
  • Memorial Day (Last Monday in May)
  • Juneteenth National Independence Day (June 19)
  • Independence Day (July 4)
  • Labor Day (First Monday in September)
  • Columbus Day (Second Monday in October)
  • Veteran’s Day (November 11)
  • Thanksgiving Day (Fourth Thursday in November)
  • Christmas Day (December 25)

Family and Medical Leave

Like paid leave, there is no federal law concerning family or medical leave in the US. Some states have their own laws around sick and maternity/paternity pay that employers must follow, but this is not required at a federal level. 

For companies subject to the Family and Medical Leave Act (private sector employers with 50 or more employees), workers are permitted to take 12 weeks of unpaid leave for certain medical situations including:

  • For the birth/care of a newborn child
  • For the placement of a child with an employee for adoption/foster care
  • To take medical leave for a serious medical condition
  • For the care of an immediate family member (child, spouse, or parent) with a serious health condition

Employees are eligible for leave if they meet the below circumstances:

  • They have worked for their employer for a minimum of 12 months
  • They have worked for at least 1,250 hours over the last 12 months
  • They work at a location where the employer employs a total of 50 or more people within a 75-mile radius

Pensions

There are various pension options available to employees in the US. Most people can claim Social Security payments when they retire if:

  • They are 62 or older
  • They have worked and paid Social Security contributions for 10 years or more

Other pension plans are also available depending on whether an employee has worked in the public or private sector.

There are over 500 public sector retirement pension programs in the US, covering employees working in a range of industries such as healthcare, education, law enforcement, and public administration.

Employees working in the private sector can contribute to a private pension organized by their employer.

However, companies that do provide pension plans must comply with the laws under the Employee Retirement Income Security Act (ERISA). 

This includes:

  • Full disclosure of important plan information
  • Timely and fair process for benefit claims

There are two types of retirement plans that ERISA covers as detailed below.

Defined Benefit Plans

A defined benefit plan provides retired employees with a specific monthly benefit when they reach retirement age. 

This may be paid at a specific monetary amount, such as $100 per month once retirement is reached. However, it is more commonly calculated based on factors such as salary and years of service.

Benefits covered in a defined benefit plan are protected by federal insurance provided by the Pension Benefit Guaranty Corporation.

Defined Contribution Plans

A defined contribution plan does not provide a specific amount at retirement age. In this type of plan, the employee and/or employer contribute to the retirement fund at a set rate (e.g. 5% of annual earnings), and these earnings are then invested on behalf of the employee. 

The employee will receive the value of the account upon reaching retirement age. The balance of the account can fluctuate based on the value of the investments.

Severance Pay

There is no federal requirement for employers to pay severance pay to employees upon termination of employment under the Fair Labor Standards Act (FLSA).

Severance pay is agreed upon between employer and employee when an employment contract is established. If severance pay is offered, this is usually based on salary and length of employment.

Startups

A diverse talent pool, strong support networks, and, of course, innovation-friendly policies make Canada’s startup ecosystem one of the most vibrant in the world.

Expanding startups in Canada face numerous challenges regarding employment standards, payroll systems, and other issues.

PEOs can offer much help in this regard. Startups can leverage the resources and expertise of a PEO for compliance, benefits, and tax regulations to avoid establishing a local entity.

Supplementary Employee Benefits in the USA

It’s recommended that employers offer supplementary employee benefits alongside mandatory benefits to improve employee retention and attract potential talent. Some supplementary employee benefits that employers could offer include:

  • Private healthcare plans
  • Performance bonuses
  • Private pension plans
  • Paid Maternity/paternity leave
  • Employee allowances such as transport, housing, and food expenses

Approximately 36% of employees in the US have access to supplementary benefits from their employer including dental care, life insurance, and enhanced maternity/paternity cover.

Optimize Employee Benefits with Remote People

Hiring employees in the US can be difficult based on the varying employee benefits available at both a federal and state level.

By using Remote People as an Employer of Record in the US, you can simplify compliance with employee benefits in the US, alongside other services such as payroll and benefits administration. It’s crucial to choose an EOR provider that is experienced with US labor law to reduce the chance of error and improve efficiency.

Our US EOR service offers a straightforward way to hire employees across the country, giving businesses a reliable structure for managing staff without the complexities of local entity setup.

Remote People can also help to hire top qualified employees in the US via their US recruitment service. With an experienced team of recruitment consultants, you can find the best US talent for your business.