Hire employees in the United States using an Employer of Record

Hiring one employee in the US rarely means dealing with just one government agency. You're looking at federal tax registration, a state tax account (sometimes in more than one state if your hire works remotely near a border or moves mid-year), workers' comp coverage, an unemployment insurance account, and payroll tax filings that run on a biweekly cycle. Most companies don't realize how fragmented this gets until they're three weeks into onboarding and stuck waiting on a state ID number just to run the first paycheck.

The good news: you've got three real paths to get someone on payroll, and they come with very different cost and speed tradeoffs.

Your three options

Option 1: Set up your own entity

• Cost: about $500-$1,500 to incorporate, plus $2,400-$4,700 a year in ongoing maintenance (registered agent, filings, compliance admin)
• Timeline: several months once you factor in state registration, opening a business bank account, and setting up payroll infrastructure
• Complexity: you own tax registration, payroll runs, benefits administration, and state-by-state compliance from day one
• Makes sense when: you're building a long-term US presence and expect to scale past a handful of employees

Option 2: Hire contractors

• Cost: no entity costs, but you lose the ability to direct day-to-day work the way you would an employee
• Timeline: immediate, you can have someone invoicing you this week
• Risk: misclassify someone who's really functioning as an employee and you're exposed to back taxes, benefits liability, and penalties from the IRS or state labor agencies
• Makes sense when: the engagement is short, project-based, or genuinely independent work
• Hire with Columbus also handles compliant contractor agreements and payments if that's the route you need

Option 3: Use an employer of record (recommended for most first US hires)

• Cost: starting from $179/month per employee
• Timeline: 2-3 days to get someone legally employed and paid
• Complexity: none on your end, we handle registration, payroll, tax withholding, and compliance
• Makes sense when: you're hiring 1-50 people, testing the US market, or building a team across several countries at once

Does the math actually work out?

Here's the honest version: US entity costs are lower than in a lot of countries, so an EOR isn't always the dramatically cheaper option once you're past a handful of hires. For a single employee, $179/month works out to $2,148 a year, which lands right in the middle of that $2,400-$4,700 annual entity maintenance range, before you've even paid the setup cost or built out payroll.

Where EOR wins isn't just price, it's speed and offloaded admin. You skip months of registration, you don't need someone in-house tracking state unemployment filings or biweekly payroll cycles, and you're not stuck with fixed maintenance costs if the hire doesn't work out. Hiring three people through an EOR runs about $537/month total, with zero setup lag and zero compliance monitoring on your side. If you're testing the US market or hiring across two or three states with different rules, that's a lot of complexity to hand off for the price of a few team lunches.

Ready to hire in the US without setting up an entity first? Get started with Hire with Columbus.

What employment types can you use?

You've got three ways to legally bring someone onto your team in the United States. Here's how the costs, speed, and risk actually compare.

How can you hire in United States?

1. Set up your own entity

Setting up a legal entity (usually an LLC or corporation) means incorporation paperwork, registered agent fees, and state filing costs before you even post a job. Based on typical entity setup costs, expect somewhere between $500 and $1,500 just to get the entity registered, and that's before payroll systems, legal counsel, or HR infrastructure.

Ongoing costs don't stop there. Annual compliance, accounting, and registered agent renewals typically run $2,400 to $4,700 a year, and that's on top of whatever you're paying an accountant or employment lawyer to keep you compliant with state and federal labor law.

Timeline-wise, plan for months, not days. Between state registration, tax ID setup, and getting payroll and benefits systems running, this isn't a "hire someone next week" solution.

This route makes sense if you're planning 20+ employees long-term or need a permanent physical presence in the US market. If you're testing the waters or hiring your first one or two people, it's a lot of overhead for not much payoff.

2. Hire contractors/freelancers

Contractors let you start work immediately, no entity, no waiting. If you need someone for a three-month project or a specialized skill you won't need again after Q4, this is often the fastest path.

The catch: misclassification risk is real. If a contractor works like an employee (set hours, ongoing role, you control how they do the work), the IRS and state labor agencies can reclassify them, and you're on the hook for back taxes and legal disputes.

Contractors also can't be managed the way employees can. You can't dictate their schedule, provide equipment, or fold them into your benefits stack without raising red flags.

This works best for short-term projects under six months or highly specialized, self-directed work. Hire with Columbus handles compliant contractor agreements and payment processing if this is the route you pick, so you're not drafting these from scratch.

3. Use an employer of record (recommended for most companies)

With an EOR, Hire with Columbus becomes the legal employer on paper in the US. You keep full control over day-to-day work, performance management, and strategy.

Cost starts from $179/month per employee. Timeline: you can have someone hired and working in 2-3 days instead of months.

We handle the employment contract, payroll, tax withholding, benefits administration, and compliance with state and federal labor law. You focus on managing the work.

This is the right call if you're hiring 1-50 people, testing the US market before committing to an entity, building a multi-country team, or just want to avoid the entity setup costs and timeline altogether.

Quick cost example: 5 employees through an EOR runs from $895/month total. Compare that to entity setup costs ($500-$1,500 upfront) plus $2,400-$4,700 a year in ongoing compliance, before you've even paid a single salary. For most companies under 20 employees, the math favors the EOR route.

Decision matrix

Employment contract types in United States

Once you've picked how you're hiring, you still need to decide what kind of contract to use. The US doesn't have a single unified labor code like many countries, employment law is a mix of federal rules and state-specific statutes, so contract terms can shift depending on which state your employee lives in.

At-will employment is the default arrangement for most full-time roles. Either party can end the relationship at any time, for almost any reason, without notice. This is the standard setup for core, ongoing roles and the one most companies default to.

Fixed-term contracts exist but are less common in the US than in many other countries. They're typically used for project-based work, seasonal roles, or specific coverage needs (parental leave backfill, for example). There's no federal statute capping how many times you can renew one or forcing automatic conversion to permanent status, but repeatedly renewing a "temporary" contract for the same ongoing work can create legal exposure if it starts to look like disguised permanent employment.

Part-time employment carries the same at-will default as full-time roles. Part-time employees aren't automatically entitled to different statutory protections under federal law, though eligibility for certain employer-provided benefits (health insurance, retirement contributions) often depends on hours worked, and that threshold is set by your company policy, not a federal minimum.

Hire with Columbus drafts contracts that match whichever structure fits your hiring need, at-will, fixed-term, or part-time, and makes sure the language holds up under the specific state's employment law where your hire is based. That's one less thing to get wrong when you're moving fast.

How does payroll and taxation work?

The minimum wage in the United States is $1,257 per month. Employer contributions sit on top of that, and so does a payroll system that varies more by state than most companies expect.

Income tax: progressive, no single flat rate

There's no flat federal income tax rate in the US. The system is progressive, meaning the more someone earns, the higher their marginal rate climbs, up to a top personal income tax rate of 37%.

Across the workforce, the average effective income tax rate works out to about 16.7%. That's not what any one employee pays, it's the blended average once you account for deductions, credits, and the progressive brackets. Actual withholding depends on the employee's income level, filing status, and the state they live in, since many states layer their own income tax on top of the federal one.

Social security contributions

Both employer and employee pay into social security programs, and the split looks like this:

That employer rate isn't a single named tax, it's the average across employers once you factor in the different contribution categories that fund social security and related programs. Your actual cost can shift slightly depending on the employee's wage level and the state you're operating in.

Payroll cycle and pay structure

US payroll typically runs on a biweekly cycle, meaning employees get paid every two weeks rather than monthly. Budget for 26 pay runs a year, not 12, and build that into your cash flow planning if you're used to monthly payroll elsewhere.

There's no statutory 13th or 14th month salary in the US. If you want to offer a year-end bonus, that's a discretionary call for your company, not a legal requirement.

What a real salary actually costs

Say you're hiring someone at $70,000 a year. Add the average employer social contribution rate of 8.1%, and your real cost lands around $75,670 a year, before you factor in benefits like health insurance, which most US employees expect but which sits outside the statutory contribution numbers above.

This is just an illustration using average rates. Your actual number moves depending on the employee's state, wage level, and whatever benefits package you build around the base salary.

Common payroll mistakes companies make in the US

• Treating it like one national system. State income tax, state unemployment insurance, and local payroll rules vary enough that a process that works in Texas can misfire in California.
• Missing multi-state complexity. If you have remote employees spread across several states, you likely owe payroll tax registrations in each one, not just where your company is based.
• Misclassifying contractors as employees (or vice versa). US worker classification rules are specific, and getting this wrong creates real back-tax and benefits exposure.
• Assuming payroll is monthly. Building a monthly payroll process when your workforce expects biweekly pay creates cash flow and compliance headaches you don't need.
• Skipping quarterly filing obligations. US payroll tax reporting typically happens on a quarterly cadence, and missing a cycle compounds fast.

Handling this without an in-house payroll team

Running US payroll yourself usually means picking payroll software, registering for tax accounts in every state you hire in, and staying on top of filing deadlines that differ by jurisdiction. It's manageable with the right accountant, but it takes real setup time before your first employee even gets paid.

With Hire with Columbus: starting from $179/month per employee, fully compliant. We run payroll, calculate and remit the contributions above, and handle state-by-state registration so you're not the one tracking 50 different sets of rules.

What benefits and leave are required?

Here's something that surprises a lot of international employers: the US has zero federal law requiring paid vacation, sick leave, or parental leave. Zero. That's not a typo, and it's also not the full story, because "no federal mandate" doesn't mean "no obligation."

Annual vacation

There's no statutory minimum for paid vacation days at the federal level. None. Whatever vacation policy you offer is a matter of company policy and your employment contract, not law.

That said, a few states and cities have their own paid-time-off or accrual requirements, and once you promise vacation days in a contract or handbook, many states treat accrued vacation as earned wages that must be paid out on termination. Skip this detail and you can end up owing a departing employee for unused days you thought were "use it or lose it."

Sick leave

Same story as vacation: no federal mandate. Paid sick leave in the US is a patchwork of state and city laws, so what you owe an employee in one location can be completely different from another.

There's no federal requirement for a doctor's note either, though many employer policies require one after a set number of consecutive sick days. Employers typically pay for sick leave directly, not social insurance, since there's no national scheme covering it.

Parental leave

Maternity leave, paternity leave, and general parental leave all sit at 0 weeks of guaranteed statutory paid leave nationally. Federal law provides job-protected unpaid leave for eligible employees at qualifying employers, but it doesn't require anyone to pay wages during that time.

A handful of states run their own paid family leave programs funded through payroll contributions, so your obligations shift depending on where your employee actually lives and works. This is one of the most common blind spots for companies hiring their first US employee outside a major state like California or New York.

Public holidays 2026

The US observes 10 public holidays a year. Private employers aren't legally required to give employees the day off or pay a holiday premium, but most competitive employers observe these dates as paid holidays.

Mandatory benefits and who pays

Even without vacation or sick leave mandates, you're still on the hook for payroll-based social contributions.

• Employee side: Employee social contributions average about 7.7% of gross pay, deducted from wages.
• Employer side: Employer social contributions average about 8.1% of gross pay, on top of salary.
• Unemployment insurance: Funded through a separate employer-paid tax that varies by state, on top of the contributions above.
• Health insurance: Federal law requires many mid-size and larger employers to offer health coverage, and most competitive employers offer it regardless of size to attract talent.

There's no thirteenth salary requirement in the US, so you won't need to budget for an extra month's pay the way you might in some other countries.

Optional benefits that actually matter

Because the statutory floor is so low, competitive US employers differentiate almost entirely through voluntary benefits:

• Paid vacation (commonly 10 to 20 days, entirely at employer discretion)
• Paid sick leave beyond any state minimum
• 401(k) retirement plans with employer matching
• Paid parental leave (since it's not required, offering it is a real recruiting advantage)
• Dental and vision coverage on top of health insurance
• Life and disability insurance

Common mistakes

The biggest one: assuming "no federal law" means "no obligation." State and city rules on sick leave, paid family leave, and vacation payout catch a lot of companies off guard, especially ones hiring across multiple states.

The second mistake is treating vacation policy casually. Once it's in a contract or handbook, several states legally require payout of unused days at termination, and getting this wrong on a final paycheck can trigger penalties under state wage laws.

Tracking which of the 50 states apply which rule to which employee is exactly the kind of detail that eats a founder's Friday afternoon. Hire with Columbus handles benefits administration, state-specific leave compliance, and payroll contributions for $179/month per employee, so you're not the one cross-referencing state labor codes before every offer letter goes out.

What are the compliance requirements?

Most companies assume every country works like the ones with strict notice periods and mandatory severance. The US flips that assumption: there's no federal law requiring notice, severance, or a "just cause" reason to end most employment relationships. That sounds simple until you realize the compliance risk lives somewhere else entirely, in classification, wage law, and discrimination protections.

Employment contract requirements

Federal law doesn't require a written employment contract for most workers. Employment is presumed "at-will," meaning either side can end it at any time, for almost any reason, without notice.

That said, skipping a written agreement is a bad idea in practice. An offer letter or contract should still cover pay, job title, work location, benefits eligibility, and confidentiality terms. No federal registration is required to hire someone, but you do need to complete standard onboarding paperwork (tax withholding forms, work eligibility verification) before the person starts.

Probation periods

There's no statutory probation period in the US. Companies commonly use an introductory period (often set out in an offer letter or handbook) to formalize a performance check-in, but it doesn't change anyone's legal rights.

Because employment is at-will, you can generally end the relationship during or after any "probation" window without extra process, as long as the reason isn't discriminatory or retaliatory.

Working time regulations

The average US work week runs around 40 hours, though actual hours worked average closer to 37.75 per week. Federal wage and hour law requires overtime pay for eligible (non-exempt) employees who work beyond the standard threshold, at a premium rate set by federal wage law.

Whether someone qualifies for overtime depends on job duties and salary level, not job title, and getting that classification wrong is one of the most expensive mistakes employers make. Meal and rest breaks aren't required under federal law; they're governed by the state where the employee works. Employers must keep accurate records of hours worked and wages paid.

Notice periods

At-will employment means neither side owes the other advance notice by default. The exception is mass layoffs or plant closings at covered employers, where federal law requires advance written notice before the action takes effect. State law or an individual contract can also create notice obligations that don't exist federally.

Termination process

There's no requirement to prove "just cause," get government approval, or run a consultation process before letting someone go, and that's the single biggest difference between hiring in the US and hiring almost anywhere else.

The catch: you still can't terminate for a discriminatory or retaliatory reason (protected characteristics, whistleblowing, requesting leave, and similar categories are all off-limits). Document the real reason for termination and keep records, because the absence of a "just cause" requirement doesn't remove the risk of a wrongful termination claim.

Severance pay

If you offer severance, it's because your contract, handbook, or negotiation says so, not because federal law demands it.

Data protection

There's no single federal law equivalent to GDPR covering employee data. Instead, obligations come from a mix of state privacy laws and sector rules (health information, background checks, Social Security numbers). Treat employee data carefully regardless: limit access, secure records, and only collect what you actually need for payroll and compliance.

Common compliance mistakes

• Misclassifying non-exempt employees as exempt from overtime. This is the most common and costly error, and it triggers back pay for unpaid overtime.
• Treating employees as independent contractors. Gets the classification wrong and you owe back payroll taxes and benefits contributions.
• Skipping WARN Act notice before a mass layoff. Covered employers who skip this owe back pay and benefits for the notice period they missed.
• Terminating without documentation. At-will doesn't protect you if the real reason looks discriminatory once challenged.

Where an EOR removes the risk

Hire with Columbus classifies every worker correctly from day one, runs terminations through a compliant process regardless of which state the employee sits in, and keeps the wage and hour records regulators expect to see. That's one less area where a fast-growing team can get caught out, for $179/month per employee.

What has changed recently?

If you're planning to hire in the US this year, a handful of numbers just got updated and they're worth knowing before you run payroll or price out a hire.

Minimum wage floor moved in July 2026

The federal minimum wage now sits at $1,257 a month as of July 1, 2026. That's the national floor, but plenty of states and cities set their own higher minimums, so don't assume the federal number applies everywhere you're hiring. If you're using an EOR, this is one of those details we track by state so you're not the one cross-checking city ordinances.

Corporate and personal tax rates confirmed for 2026

The corporate tax rate stayed at 21% and the top personal income tax rate held at 37%, both confirmed as of March 2026. The average effective income tax rate across workers sits around 16.6%, but remember that's a progressive system, not a flat rate everyone pays. If you're budgeting total employment cost, don't confuse the top marginal rate with what a typical hire actually pays.

Payroll cadence is standardizing

Biweekly payroll has become the dominant cycle as of the start of 2026. If you're setting up payroll infrastructure yourself, that's the rhythm to build around. It's also what we run by default when you hire through an EOR, so paychecks land on a schedule employees already expect.

The labor market is tight

Unemployment sits at 4.3% with a labor force of roughly 174.8 million people. That's a competitive hiring environment, which means slow onboarding (waiting weeks to set up an entity, for example) can cost you candidates who have other offers on the table.

No new federal paid leave mandate

As of 2026, there's still no federal statutory paternity, maternity, or parental leave requirement. If your hiring plan assumed a federal paid leave baseline, there isn't one, so any leave you offer beyond what a state mandates is a policy choice, not a legal requirement.

Entity costs to know if you're going that route

If setting up your own US entity is on the table, expect setup costs between $500 and $1,500, plus $2,400 to $4,700 a year in ongoing costs, based on current 2026 figures. Compare that against $179/month per employee with an EOR, and for a first hire or two, the math usually favors skipping entity setup entirely.