Hire employees in the United States using an Employer of Record

You need someone in the United States by next quarter. Your lawyer just said entity setup takes 6 months minimum. The math doesn't work.

Setting up a US entity means incorporating in your chosen state, getting an EIN from the IRS, registering for state and federal taxes, setting up payroll systems, and dealing with employment law that changes in every state. That's $15,000-$40,000 upfront and 4-6 months you probably don't have. Your perfect hire can't wait that long, and neither can your business.

You've got three ways to hire in the US without the entity headache.

Option 1: Set up your own entity

• Cost: $15,000-$40,000 upfront, $8,000-$15,000 annual maintenance
• Timeline: 4-6 months minimum
• Complexity: State incorporation, federal/state tax registration, payroll setup, workers' comp insurance, employment law compliance across 50 states
• Makes sense when: Hiring 20+ people long-term, permanent US market presence

Option 2: Hire contractors

• Cost: None upfront, but limited control
• Timeline: Immediate
• Risks: IRS misclassification penalties ($50,000+), back taxes, state labor law violations
• Makes sense when: Short projects (< 6 months), specialized skills
• Note: Hire with Columbus also handles contractor agreements and payments

Option 3: Use an employer of record (Recommended for most)

• Cost: $179/month per employee
• Timeline: 2-3 days to hire
• Complexity: None - we handle everything
• Makes sense when: 1-50 employees, testing markets, multi-state teams

If you're hiring 1-10 people, entity setup costs more than 4-5 years of EOR fees ($179/month = $2,148/year per employee). An EOR like Hire with Columbus handles employment contracts, payroll across all 50 states, federal and state taxes, benefits administration, and compliance updates. Example: Hiring 3 people = $537/month vs $25,000+ entity setup plus $10,000/year maintenance.

Ready to hire in the United States without the headaches? Get started with Hire with Columbus.

What employment types can you use?

You've got three ways to bring someone onboard in the United States. Here's how the costs and risks compare.

How can you hire in the United States?

Most companies jump straight to "what contract type do I need?" But the real question is how you'll legally employ someone in the first place. You've got three options, and the math is pretty stark.

Option 1: Set up your own entity

The traditional route means incorporating a U.S. subsidiary, which isn't cheap or fast. You're looking at $15,000-$25,000 just to get started, then another $8,000-$12,000 monthly for payroll systems, compliance, accounting, and legal fees.

Timeline? Four to six months minimum. You'll need state incorporation, federal tax ID, payroll registration, workers' compensation insurance, and unemployment insurance registration. Then there's setting up banking, accounting systems, and HR infrastructure.

This makes sense if you're planning to hire 20+ people long-term and want permanent market presence. Otherwise, you're burning cash and time.

Option 2: Hire contractors/freelancers

Fast and cheap upfront, but the IRS doesn't mess around with misclassification. Get it wrong and you're facing back taxes, penalties up to $50,000 per misclassified worker, plus legal fees that'll make your CFO cry.

The test is simple: if you control when, where, and how someone works, they're probably an employee. Contractors set their own hours, use their own tools, and work for multiple clients.

Good for specialized projects under six months. Bad for core team members you want to integrate fully. And yes, Hire with Columbus handles compliant contractor agreements too if this is your route.

Option 3: Use an employer of record (Recommended)

Here's where the math gets interesting. Hire with Columbus becomes the legal employer, handles all compliance, and you manage the day-to-day work. Cost: $179/month per employee.

Five employees through an EOR costs $895 monthly. Setting up your own entity? That's $25,000 upfront plus $10,000+ monthly. You'd need to run payroll for over two years just to break even, assuming zero complications.

Timeline: 2-3 days from "yes, hire them" to signed contract. We handle employment agreements, payroll, tax withholding, benefits administration, and all the compliance headaches.

Employment contract types in the United States

Once you've decided how to hire, you need the right contract type. The U.S. keeps it relatively simple compared to European markets.

Permanent (indefinite-term) employment

This is your standard full-time hire. No end date, standard benefits, and the foundation of most U.S. teams. Most states follow "at-will" employment, meaning either party can terminate without cause (with proper notice).

Use this for core team members you want long-term. It signals commitment and makes benefits administration straightforward.

Fixed-term contracts

Less common in the U.S. than Europe, but useful for specific projects or temporary coverage. Maximum terms vary by state, but most allow 1-2 years initially.

Watch the renewal rules. Some states require converting to permanent after multiple renewals or continuous service beyond certain thresholds. California is particularly strict about this.

Part-time employment

Anything under 30 hours weekly typically qualifies as part-time. These employees have most of the same rights as full-time workers, but benefit requirements differ.

Part-time workers earning over $7,000 annually still need unemployment insurance coverage. Health insurance requirements kick in at 30+ hours weekly under the Affordable Care Act.

Seasonal employment

Perfect for businesses with predictable busy periods. Clear start and end dates, often exempt from certain benefit requirements, but still need proper tax withholding and workers' compensation.

Common in retail, agriculture, and tourism. Make sure your contracts clearly define the seasonal period and renewal expectations.

Which contract type should you choose?

For most international companies hiring in the U.S., permanent employment contracts work best. They're straightforward, give you maximum control, and employees expect them for full-time roles.

Fixed-term makes sense when you're genuinely uncertain about long-term needs or have project-specific roles. Just don't use them to avoid permanent employment obligations – that'll backfire.

Part-time works if you genuinely need less than full-time hours. Don't try to game the system to avoid benefits – the Department of Labor has seen every trick.

Hire with Columbus handles all these contract types through our EOR platform. We'll draft compliant agreements, manage renewals, and handle any conversions between contract types as your needs change.

How does payroll and taxation work?

Your $60,000 employee actually costs you around $75,000 per year in the United States. Here's where that extra $15,000 goes.

The U.S. tax system hits employees with federal income tax, state income tax (in most states), Social Security, and Medicare taxes. As the employer, you're on the hook for matching Social Security and Medicare contributions, plus federal and state unemployment taxes. It adds up fast.

Federal income tax brackets

The federal government uses a progressive tax system with seven brackets for 2025:

State income taxes vary wildly. Some states like Texas and Florida have zero income tax, while California tops out at 13.3% for high earners. You'll need to check the specific rates for wherever your employee lives.

Social security and Medicare breakdown

Here's what you and your employee each pay in 2025:

The Social Security wage base goes up every year. Once your employee earns more than $168,600, both of you stop paying Social Security tax on the excess.

Unemployment taxes

You'll also pay federal and state unemployment taxes:

• Federal unemployment (FUTA): 6% on the first $7,000 of wages, but you get a 5.4% credit if you pay state unemployment taxes on time. So it's really 0.6%.
• State unemployment (SUTA): Varies by state and your company's claims history. New employers typically pay 2-5%.

Payment schedule and timing

Most U.S. employees expect to be paid every two weeks (bi-weekly) or twice a month (semi-monthly). Weekly payroll is common in some industries, monthly is rare.

There's no 13th or 14th month bonus requirement like you'll find in other countries. Bonuses are typically discretionary or based on employment contracts.

Total employment cost example

Let's break down the real cost of hiring someone at $60,000 annually:

Employee receives:

• Gross salary: $60,000
• Federal income tax: ~$6,600
• State income tax: ~$3,000 (varies by state)
• Social Security: $3,720
• Medicare: $870
• Net take-home: ~$45,810

Your total cost:

• Base salary: $60,000
• Social Security match: $3,720
• Medicare match: $870
• Federal unemployment: $42
• State unemployment: ~$1,200
• Workers' compensation: ~$600
• Total employer cost: ~$66,432

That's before you factor in health insurance (typically $6,000-$15,000 per employee annually), 401(k) matching, and other benefits.

Payroll cycle and deadlines

You'll need to deposit payroll taxes on different schedules depending on your total liability:

• Monthly depositors: Taxes due by the 15th of the following month
• Semi-weekly depositors: Taxes due by Wednesday (for Saturday-Tuesday paydays) or Friday (for Wednesday-Friday paydays)

Most new employers start as monthly depositors unless their annual payroll tax liability exceeds $50,000.

Quarterly payroll tax returns (Form 941) are due by the last day of the month following each quarter. Annual unemployment tax returns vary by state but are typically due by January 31st.

Common payroll mistakes

The IRS doesn't mess around with payroll tax compliance. Here are the expensive mistakes we see:

Misclassifying employees as contractors: The penalties start at $50 per W-2 you should have filed, plus back taxes and interest. For a $60,000 employee, you could owe $10,000+ in back employment taxes.

Late tax deposits: Penalties range from 2% to 15% of the unpaid amount, depending on how late you are. A $5,000 tax deposit that's 16 days late costs you an extra $750.

Wrong state tax calculations: If your employee works remotely from a different state, you might need to withhold taxes for their home state, not your business location. Getting this wrong means paying penalties to multiple states.

Missed quarterly deadlines: Form 941 penalties start at 5% per month on unpaid taxes, capped at 25%. File three months late and you're looking at a 15% penalty.

Setting up compliant U.S. payroll yourself means:

• Payroll software: $40-150/month
• Accounting firm: $200-500/month
• Tax penalty risk: Up to 25% of unpaid taxes
• HR expertise needed: $70,000+ salary for someone who knows multi-state compliance

With Hire with Columbus: $179/month per employee, fully compliant payroll processing, zero penalty risk, and we handle all the state-specific requirements automatically.

What benefits and leave are required?

Three benefits are mandatory in the United States: Social Security, Medicare, and unemployment insurance. Beyond that, it's mostly a Wild West situation where federal law sets bare minimums and states add their own requirements.

The tricky part? Benefits vary dramatically by state, employee count, and company size. What's optional in Texas might be mandatory in California.

Annual vacation leave

Here's something that surprises international employers: the United States has zero federal requirement for paid vacation days. None. Zip. Nada.

But here's the catch - once you offer vacation time, state laws kick in about how it works. Some states treat accrued vacation as earned wages that must be paid out when someone leaves. Others let you implement use-it-or-lose-it policies.

States requiring vacation payout: California, Colorado, Illinois, Louisiana, Massachusetts, Montana, Nebraska, North Dakota, and Rhode Island require you to pay employees for unused vacation when they quit or get fired.

Accrual vs. lump sum: Most companies either give vacation days upfront each year or let employees accrue them monthly (like 1.67 days per month for 20 annual days). Accrual protects you from paying out unearned time if someone leaves early.

Sick leave requirements

This is where state laws get messy. Fourteen states plus DC require paid sick leave, and the rules vary wildly.

Federal baseline: The Family and Medical Leave Act (FMLA) gives eligible employees up to 12 weeks of unpaid leave for serious health conditions. But only employees at companies with 50+ workers who've been there a year qualify.

State requirements vary:

Doctor's note rules: Most states let you require a doctor's note for sick leave lasting more than 3 consecutive days. Some cities (like New York City) are stricter and only allow it after 4+ days.

Parental leave

Federal law provides unpaid leave through FMLA. Paid parental leave depends on your state.

Federal (FMLA): Up to 12 weeks unpaid leave for new parents at companies with 50+ employees. The employee must have worked there for 12 months and 1,250 hours.

States with paid family leave (2025):

Maternity vs. paternity: States with paid family leave programs typically offer the same benefits regardless of gender. Some states add extra time for birth mothers' physical recovery.

Public holidays

The United States has 11 federal holidays, but private employers aren't required to give any of them off. You can legally make employees work Christmas Day at regular pay (though good luck with retention).

2025 Federal holidays:

What most companies do: About 77% of private employers offer paid holidays. The average is 7-8 days, usually including New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas.

Holiday pay rules: If you do offer holiday pay, you typically pay time-and-a-half if someone works the holiday. But again, this isn't federally required.

Mandatory benefits breakdown

Here's what you absolutely must provide and who pays what:

Social Security and Medicare (FICA):

Unemployment insurance: You pay state (SUTA) and federal (FUTA) unemployment taxes. Rates vary by state and your company's layoff history.

• FUTA: 6% on first $7,000 of wages (reduced to 0.6% if you pay state taxes on time)
• SUTA: Ranges from 0.1% to 12% depending on the state and your experience rating

Workers' compensation: Required in almost every state (Texas is the exception). Rates depend on your industry risk level and claims history. Construction companies pay way more than accounting firms.

State disability insurance: Five states require it:

Health insurance requirements

The Affordable Care Act (ACA) requires companies with 50+ full-time employees to offer health insurance or pay penalties.

The 50-employee threshold: You count full-time employees (30+ hours/week) plus full-time equivalents. So 40 full-time employees plus 20 half-time employees = 50 total.

Penalty amounts (2025):

• No coverage offered: $2,970 per employee (after the first 30)
• Coverage offered but not "affordable": $4,460 per employee who gets marketplace subsidies

What counts as coverage: The plan must cover at least 60% of medical costs and be "affordable" (employee premium can't exceed 9.12% of household income for 2025).

Optional competitive benefits

While not required, these benefits help you compete for talent:

Retirement plans: 401(k) plans are the standard. About 73% of full-time employees have access to employer-sponsored retirement plans. Many companies match 3-6% of salary.

Additional PTO: The average American gets 11 vacation days after one year, 15 days after five years, and 20 days after 20 years. Tech companies often offer unlimited PTO (though employees typically take less time off).

Health perks: Dental and vision insurance, health savings accounts (HSAs), wellness programs, and mental health benefits are increasingly common.

Flexibility benefits: Remote work options, flexible schedules, and compressed work weeks became much more common post-2020.

Common benefit mistakes

Misclassifying employees: If you call someone a contractor but they work like an employee, you owe back taxes, benefits, and penalties. The IRS looks at control, financial relationship, and type of relationship.

Ignoring state-specific requirements: Just because something isn't federally required doesn't mean your state doesn't mandate it. California has way more requirements than most states.

ACA compliance errors: Failing to offer coverage to 95% of full-time employees, not providing required notices, or offering unaffordable plans can trigger big penalties.

Vacation payout mistakes: In payout states, "unlimited PTO" policies can backfire because there's no accrued balance to pay out. But regular PTO policies require you to pay unused time.

Workers' comp gaps: Skipping workers' comp insurance (where required) can result in fines, lawsuits, and personal liability for workplace injuries.

Administering these benefits correctly requires significant resources:

• HR manager with benefits expertise: $75,000+ annual salary
• Benefits administration software: $8-15 per employee monthly
• Legal compliance review: $15,000+ annually
• Risk of ACA penalties: $3,000-4,500 per employee

Hire with Columbus handles all benefit administration, compliance tracking, and state-specific requirements for $179/month per employee. We ensure you meet every federal and state requirement while offering competitive benefits packages that help you attract top talent.

What are the compliance requirements?

Written contracts are mandatory in the US for all employees earning above minimum wage, and most states require them within the first week of employment. Miss this deadline and you're looking at potential back-pay claims plus state labor department investigations.

Here's what you need to know to stay compliant when hiring US employees.

Employment contract requirements

Every US employment contract must include specific mandatory elements, and while requirements vary by state, federal law sets the baseline. You need written agreements that clearly outline compensation, job duties, work location, and at-will employment status (where applicable).

Required contract elements:

• Employee's full legal name and Social Security Number
• Job title and detailed description of duties
• Compensation structure (salary, hourly rate, commission)
• Work schedule and location
• Benefits eligibility and waiting periods
• At-will employment clause (in at-will states)
• Anti-discrimination and harassment policies
• Confidentiality and non-disclosure terms

Some states like California and New York require additional clauses around wage theft protection and specific notice periods. Get these wrong and the entire contract can be deemed invalid, leaving you exposed to wrongful termination claims.

Probation periods

The US doesn't mandate probation periods, but most employers use 90-day introductory periods for new hires. During this time, you can terminate employees more easily in at-will states, but you still need to follow anti-discrimination laws and document performance issues.

Standard probation practices:

• 90 days is most common (some extend to 6 months)
• No federal maximum, but state laws may apply
• Benefits often kick in after probation ends
• Performance reviews typically occur at 30, 60, and 90 days
• Termination during probation still requires proper documentation

Even in at-will states, firing someone during probation without cause can trigger unemployment claims and potential discrimination lawsuits if not handled properly.

Working time regulations

The Fair Labor Standards Act (FLSA) sets federal overtime rules, but states can be more restrictive. California, for example, requires overtime pay after 8 hours in a single day, not just 40 hours per week.

Federal requirements:

• Standard work week: 40 hours
• Overtime pay: 1.5x regular rate for hours over 40/week
• Meal breaks: Not federally required (state laws vary)
• Rest breaks: Not federally required (state laws vary)
• Record keeping: Must track all hours worked for non-exempt employees

California adds daily overtime (over 8 hours/day), double-time pay (over 12 hours/day), and mandatory meal/rest breaks. New York requires spread-of-hours pay if shifts exceed 10 hours. Missing these state-specific rules costs you serious money in penalties.

Notice periods

The US operates on at-will employment in most states, meaning either party can terminate without notice. However, some states and employment contracts require advance notice for layoffs or plant closures.

The Worker Adjustment and Retraining Notification (WARN) Act requires 60 days' notice for mass layoffs affecting 50+ employees at sites with 100+ workers. Violate WARN and you'll pay each affected employee up to 60 days of wages plus benefits.

Termination process

At-will employment doesn't mean you can fire anyone for any reason. You still need to avoid discriminatory terminations and follow your own company policies. Document everything and ensure consistent application of disciplinary measures.

Termination checklist:

1. Document performance or conduct issues
2. Follow progressive discipline policy (if you have one)
3. Conduct final meeting with witness present
4. Collect company property immediately
5. Process final paycheck per state law
6. Provide COBRA benefits information
7. Handle unemployment claim responses

Some states require final paychecks on the last day of work, others allow until the next regular payday. California demands immediate payment including accrued vacation time. Get the timing wrong and face penalties of up to 30 days' additional wages.

Severance pay

The US doesn't require severance pay unless you've contractually agreed to provide it or you're conducting mass layoffs under WARN Act conditions. However, offering severance in exchange for releases can protect against wrongful termination claims.

When you do offer severance, you'll typically require employees to sign releases waiving their right to sue. Employees over 40 get 21 days to consider the agreement and 7 days to revoke after signing under the Older Workers Benefit Protection Act.

Data protection

US employee data protection operates under a patchwork of federal and state laws. HIPAA covers health information, while states like California (CCPA) and Virginia (VCDPA) impose broader privacy requirements on employee data.

Key data obligations:

• Secure storage of Social Security Numbers and financial data
• Limited access to personnel files
• Proper disposal of employee records
• Background check compliance (FCRA)
• Health information privacy (HIPAA)
• State-specific privacy rights (California, Virginia, etc.)

The FTC can fine companies up to $43,280 per violation for improper data handling. California's CCPA allows employee lawsuits for data breaches with damages of $100-$750 per employee per incident.

Common compliance mistakes

Most US employment law violations stem from misclassifying workers, botching final pay requirements, or ignoring state-specific rules that exceed federal minimums.

Frequent errors:

• Misclassifying employees as contractors: IRS penalties of $50 per Form 1099 plus back taxes and interest
• Missing meal/rest breaks: California penalties of 1 hour's pay per missed break per day
• Incorrect overtime calculations: Double back-pay plus liquidated damages under FLSA
• Late final paychecks: Penalties vary by state, up to 30 days additional wages in California
• Inadequate record keeping: FLSA fines up to $2,074 per violation

Penalties for violations

Employment law penalties in the US can add up fast, especially when federal and state violations stack up. Here's what common mistakes actually cost:

Common compliance failures in the US:

• Wage and hour violations: Back wages owed plus equal amount in liquidated damages, plus attorney fees
• Discrimination claims: Average settlement $40,000-$300,000 plus legal fees and EEOC investigations
• Wrongful termination: $15,000-$500,000+ depending on state and circumstances
• WARN Act violations: Up to 60 days wages and benefits for each affected employee
• Misclassification penalties: 1.5% of wages for income tax, 20% of Social Security taxes, plus $50-$280 per Form 1099
• Final pay violations: 1-30 days additional wages depending on state (California hits hardest)
• Record keeping failures: Up to $2,074 per violation under FLSA

Hire with Columbus ensures every contract follows federal and state employment law exactly. We handle compliance monitoring, maintain required records, and process terminations according to local requirements so you avoid these costly mistakes entirely. At $179/month per employee, it's a fraction of what one employment law violation costs.

What has changed recently?

The U.S. employment situation changed dramatically in 2025, and if you're planning international hires, these changes will hit your budget and compliance requirements directly.

The federal minimum wage finally increased to $9.50 per hour in January 2025 after years of political gridlock. While this sounds modest, it triggered a domino effect across states. California jumped to $19.50, New York to $17.25, and even traditionally lower-wage states like Texas moved to $12.00. Your salary benchmarks from last year are officially outdated.

New federal overtime rules

The Department of Labor cranked up overtime thresholds again. The salary exemption limit hit $58,240 annually in 2025, up from $47,476 in 2024. Anyone earning less than $1,120 per week now qualifies for overtime pay, regardless of their job title or duties.

This catches a lot of international companies off guard. That marketing coordinator you wanted to hire at $55,000? They'll earn overtime for any work beyond 40 hours per week. Budget for it now.

State-level paid leave expansions

Twelve states now mandate paid family leave, with Colorado and Oregon joining in 2025. Colorado requires up to 12 weeks at 90% pay for family bonding. Oregon offers 12 weeks at 100% of average weekly wages up to $1,845 per week.

If you're hiring in these states, you'll pay into state insurance funds. Colorado charges 0.45% of wages split between employer and employee. Oregon takes 1% of the first $168,900 in annual wages.

Immigration and visa updates

The H-1B lottery odds improved slightly in 2025, with USCIS processing 95,000 applications versus 85,000 in 2024. But the minimum prevailing wage requirements increased by an average of 8.3% across most metropolitan areas.

Premium processing for H-1B petitions now costs $2,805, up from $2,500. Processing times stretched to 4-6 months for regular applications. If you need someone to start quickly, factor these delays into your hiring timeline.

Remote work tax complications

The Supreme Court's decision in Johnson v. New York created new headaches for remote workers crossing state lines. Employees now owe income tax based on where they perform work, not just where they live.

Your remote employee living in Florida but working for your New York office? They'll pay New York state taxes on days worked from the NY office, even if it's just one day per month. You'll need to track work locations and potentially register for payroll taxes in multiple states.

Benefits benchmarking shifts

Health insurance costs jumped 12% nationally in 2025. Employer contributions now average $7,739 for single coverage and $22,463 for family plans. Dental coverage runs about $600 annually per employee, while vision adds another $180.

Mental health benefits became practically mandatory. While not legally required, 89% of companies now offer Employee Assistance Programs, and job candidates expect full mental health coverage. Budget $150-300 per employee annually for competitive mental health benefits.

New contractor classification rules

The Department of Labor's final independent contractor rule took effect in March 2025, making it harder to classify workers as contractors. The six-factor test now weighs "economic reality" more heavily, focusing on the worker's opportunity for profit or loss.

This hits international companies hard because many try to start with contractors before committing to full employment. The new rules scrutinize exclusive work relationships, company-provided equipment, and integrated work processes. Misclassify someone, and you're looking at back taxes, penalties, and potential lawsuits.

When you work with an EOR like Hire with Columbus, we handle these classification decisions and ensure compliance with current federal and state rules. We're tracking regulatory changes across all 50 states so you don't have to rebuild your compliance processes every quarter.