The EOR Trap That Catches Every UK Recruiter Expanding to the US

The EOR Trap That Catches Every UK Recruiter Expanding to the US

There’s a moment that catches almost every UK recruitment agency off guard when they try to place contract workers in the United States.

Everything is going well. The client likes you. The candidates are strong. You’re about to make your first US placement. And then someone asks: “Who’s going to be running payroll for these contractors?”

The answer to that question — and whether you have one ready — will define whether your US expansion gets off the ground or grinds to a halt.

Francis Larson has watched this play out hundreds of times. As founder of Ascen, the staffing-focused Employer of Record platform backed by Y Combinator (now part of Upwork), he’s built his entire business around solving this exact problem. His message to UK firms on RecTalk was clear: the back office is not an afterthought. It’s the foundation.

Why Contract Staffing in the US Is So Different

In the UK, most recruiters have a working understanding of umbrella companies, IR35, and contractor compliance. The US has its own equivalent — and it’s more complex.

Every US state has its own employment law framework. Workers’ compensation requirements, payroll tax obligations, and contractor classification rules all vary state by state. A contractor placed in California operates under entirely different rules to one placed in Texas. Getting this wrong doesn’t just create an admin headache — it creates legal liability that sits with the staffing firm.

Then there’s the cash flow problem. US clients typically pay on net 30, 45, or even 60-day terms. If you’re running payroll for contractors every two weeks, you can be tens of thousands of pounds out of pocket before your first invoice settles.

“If you’re on a personal guarantee and your bank goes to zero because you’ve got six contractors out, that’s a lot of money. That could be $100,000 or $200,000 out before you get paid.”

— Francis Larson, Ascen

What an Employer of Record Actually Does

An EOR becomes the legal employer of your contractors in the US on your behalf. They handle:

  • Payroll — running W-2 payroll compliantly across any US state
  • Workers’ compensation — insuring contractors from day one without you needing your own policy
  • State and federal tax compliance — withholding, filing, and remitting correctly across all relevant jurisdictions
  • Benefits administration — handling healthcare and statutory requirements
  • Payroll funding — some EORs advance your payroll so you’re not waiting on client payments

You focus on winning clients and placing candidates. The EOR handles the rest.

For UK agencies entering the US, the EOR is what makes contract staffing viable without setting up a US entity, hiring a compliance team, or fronting six-figure payroll cash. The cost — typically a percentage of the contractor’s wages — is modest relative to what you’re billing on a US placement.

The Independent Contractor Myth

One of the most common mistakes UK recruiters make when entering the US: assuming they can classify contractors as independent contractors (ICs) to sidestep the EOR requirement entirely.

It seems logical — no EOR needed, no payroll to run. But US IC compliance is far stricter than most international recruiters realise. Simply having someone operate through their own LLC is not sufficient to classify them as an IC. The IRS and state labour boards look at the nature of the working relationship, not the corporate structure. Get it wrong and the liability sits with the staffing firm.

The rule of thumb: if your contractors are working regular hours for a single client, they almost certainly need to be on W-2 payroll, not classified as ICs.

Four Things to Sort Before Your First US Contract Placement

  1. Decide perm or contract first. Perm placements are simpler — no EOR needed. If you’re going contract, build the EOR cost into your margin from day one.
  2. Choose your EOR before you need it. Having the relationship in place means you can move quickly when a placement lands. Scrambling after a client says yes is not the time to learn your options.
  3. Don’t promise start dates until compliance is sorted. Nothing damages a new US client relationship faster than a delayed start caused by paperwork you didn’t plan for.
  4. Know your cash flow position. If you’re running payroll against 45-day terms, what’s your runway? Does your EOR offer payroll funding?

The Agencies That Get It Right

The UK firms successfully doing contract staffing in the US are not the ones who figured out compliance from scratch themselves. They’re the ones who found the right infrastructure early, built their model around it, and focused their energy on winning clients and placing candidates.

That’s not cutting corners. That’s running a smart business.

This post is based on two RecTalk episodes featuring Francis Larson, CEO of Ascen (now part of Upwork). Watch Episode 1 and Watch Episode 2 on YouTube.

Looking for EOR providers and other suppliers to support your US expansion? Browse the rectools.io supplier community.