Employer of Record in the USA: A Comprehensive Guide for 2026

Introduction

The United States is the largest single hiring market in the world for foreign employers, with deep talent across tech, finance, and professional services. The compliance load is layered, since the country runs on a federal floor plus 50 state regimes.

Employers need to handle the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), and Title VII at the federal level, alongside Federal Insurance Contributions Act (FICA) contributions, Federal Unemployment Tax (FUTA), state income tax withholding, state unemployment insurance, and workers' compensation in every state of employment.

This is where an Employer of Record (EOR) in the USA can help. An EOR can legally employ workers, so you can hire and pay talent across multiple US states without forming a Delaware entity or registering for a Federal Employer Identification Number (FEIN).

This guide covers employment laws, contractor classification, work visas, payroll, taxes, incorporation, and how Skuad's EOR supports each step.

USA at a glance

Population: 349.02 million

Currency: Dollar (USD)

Capital: Washington, D.C.

Languages: English

GDP: 28.75 trillion

Employment in the USA

The United States is a federal system. The federal floor of employment law sets minimum standards that apply across all 50 states, the District of Columbia (DC), Puerto Rico, and US territories, layered with 50 state employment regimes and DC that add their own protections.

Federal regulators include the U.S. Department of Labor (DOL), the Equal Employment Opportunity Commission (EEOC), the National Labor Relations Board (NLRB), the Occupational Safety and Health Administration (OSHA), and the Internal Revenue Service (IRS).

The principal federal statutes governing employment relationships in the United States include the FLSA Act, the FMLA act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act (ADA), the Age Discrimination in Employment Act (ADEA), the Equal Pay Act, the Genetic Information Nondiscrimination Act (GINA), and the Pregnant Workers Fairness Act (PWFA).

Additional statutes include the National Labor Relations Act (NLRA), the Occupational Safety and Health Act, the Employee Retirement Income Security Act (ERISA), the Uniformed Services Employment and Reemployment Rights Act (USERRA), and the Fair Credit Reporting Act (FCRA).

Several states, notably California, New York, Illinois, Massachusetts, Washington, New Jersey, Oregon, Colorado, Connecticut, and the District of Columbia, have materially more protective employment laws than the federal floor. Compliance in the United States covers both layers.

At-will employment

Employment in 49 states and the District of Columbia is presumed to be at-will, meaning either the employer or the employee may terminate the employment relationship at any time, for any lawful reason, with or without notice.

Common-law exceptions apply for public policy violations, implied contract, and the implied covenant of good faith and fair dealing, alongside federal and state anti-discrimination and anti-retaliation statutes that prohibit specific termination grounds.

Montana is the only state without default at-will employment. Under the Montana Wrongful Discharge from Employment Act (WDEA), Mont. Code Ann. 39-2-901 to 39-2-915, an employee who has completed the employer's probationary period (or 12 months of service if no period is specified) may be discharged only for good cause.

The United States does not have a federal statutory framework distinguishing "definite" (fixed-term) from "indefinite" employment contracts in the way the EU (European Union), civil-law, or comparable jurisdictions do. Employment contract duration in the US is structured around the at-will doctrine and its contractual exceptions.

• At-will employment functions as the US equivalent of an indefinite contract, although legally it differs from civil-law indefinite contracts because no cause is required for termination.
• Fixed-term employment contracts are permitted as private contractual exceptions to at-will. They are most commonly used for executive employment agreements, athletic and entertainment contracts, academic appointments, and project-based or seasonal engagements.
• Under a fixed-term contract, the employer is generally limited to termination for cause specified in the contract during the term; expiry of the term automatically ends the relationship unless renewed.
• There is no federal limit on the duration or number of renewals of fixed-term contracts. State law may impose conditions. For example, California Labor Code 2922 sets the at-will default in that state and limits personal services contracts to a maximum of seven years.

Employment relationship and offer letters

There is no federal requirement that the employment relationship be reduced to a written contract. In practice, most US employment relationships are documented through an offer letter that confirms the at-will status, compensation, benefits eligibility, and start date.

Some states require specific written disclosures at hire (for example, New York's Wage Theft Prevention Act and California Labor Code 2810.5). Compensation is paid in United States Dollars (USD).

Federal core entitlements

Data protection and employee privacy

Federal data privacy in the employment context is fragmented across several statutes rather than a single law:

• The Health Insurance Portability and Accountability Act (HIPAA) generally does not apply to employee health information held by an employer in its role as an employer.
• HIPAA applies to "covered entities" (health plans, healthcare providers conducting electronic transactions, and healthcare clearinghouses) and their business associates. Where an employer sponsors a group health plan, HIPAA obligations attach to the plan itself rather than to the employer's general HR function.
• Employer confidentiality obligations for employee medical information come primarily from the Americans with Disabilities Act (ADA), which requires that any medical information obtained from an employee or applicant be kept in separate confidential files with restricted access.
• Background checks for employment purposes are governed by the Fair Credit Reporting Act (FCRA), 15 U.S.C. 1681 et seq., enforced by the Federal Trade Commission. The Fair and Accurate Credit Transactions Act (FACTA) amended FCRA in 2003 to add identity theft and disposal-of-consumer-information protections.
  Employers using third-party consumer reporting agencies must comply with FCRA disclosure, written authorisation, and adverse action requirements.
• The Genetic Information Non-discrimination Act (GINA) prohibits employers from acquiring or using genetic information in employment decisions.
• State privacy laws add further obligations. Notable examples include the California Consumer Privacy Act (CCPA) as amended by the California Privacy Rights Act (CPRA), the New York Stop Hacks and Improve Electronic Data Security (SHIELD) Act, the Illinois Biometric Information Privacy Act (BIPA), and the various state breach notification statutes.

Foreign employers hiring in the USA operate across a federal floor (FLSA, FMLA, Title VII, ADA, ADEA, ERISA, NLRA, OSHA, FCRA, and the PWFA, effective June 2023) and a 50-state plus DC overlay where states like California, New York, Illinois, Massachusetts, Washington, New Jersey, Oregon, Colorado, Connecticut, and DC add materially stricter rules.

Enforcement is spread across the DOL, EEOC, NLRB, OSHA, IRS, and state agencies, each with its own filings, deadlines, and penalty regimes.

Skuad helps with USA employment compliance through a single workforce platform, so your team can hire, pay, and support US employees without setting up an entity or building multi-state HR infrastructure.

Contractors vs. full-time employees

The distinction between an employee and an independent contractor in the United States carries real consequences across federal tax (IRS), wage and hour law (DOL under the Fair Labor Standards Act), benefits (ERISA), state unemployment insurance, state workers' compensation, and state-specific ABC tests (Absence of control, Business of the hiring entity, and Customarily engaged in an independent trade).

The classification tests vary across regimes, and a worker may be an employee under one test and a contractor under another. Many companies choose to hire a contract worker instead of a full-time employee because it releases them from providing the following benefits.

• Health insurance
• Vacation time
• 401(k) matches

These benefits are not federally mandated for any employee. The Affordable Care Act's Employer Shared Responsibility Provision applies to employers with 50 or more full-time equivalent employees (the large-employer mandate to offer minimum essential coverage). Vacation, paid time off, and 401(k) matches are governed by employer policy and ERISA plan documents.

An independent contractor is engaged for a defined project, deliverable, or period under a services agreement, with no withholding from the contractor's payment and no employer-side payroll tax contribution.

The hiring business reports annual payments to the contractor on Form 1099-NEC (Non-Employee Compensation). The reporting threshold is $600 for payments made through 31 December 2025 and increases to $2,000 for payments made on or after 1 January 2026 under the One Big Beautiful Bill Act (P.L. 119-21), with annual inflation adjustment starting in 2027.

Contractors may operate as individuals, single-member Limited Liability Companies (LLCs), multi-member LLCs, or limited liability partnerships. The labor laws and tax framework in the United States are different for full-time employees and independent contractors.

The IRS common law test

For federal employment tax purposes, the IRS applies a common-law test that examines the degree of control and independence in the working relationship. The facts fall into three categories:

• Behavioral control, whether the business has the right to direct and control what work is accomplished and how it is done. The IRS considers the type and degree of instructions given (when, where, what tools to use, what order to follow), evaluation systems, and training.
  An employee is generally subject to the business's instructions about when, where, and how to work, and an independent contractor ordinarily uses their own methods.‍
• Financial control, whether the business directs or controls the financial aspects of the worker's job. Factors include the worker's unreimbursed business expenses, the worker's investment in facilities or tools, and the extent to which the worker makes services available to the relevant market.
  Other factors are how the business pays the worker and the worker's opportunity for profit or loss.
• Relationship of the parties, written contracts or oral agreements describing the relationship the parties intended to create, and whether the business provides employee-type benefits (insurance, pension, vacation, sick pay).
  Other factors are the permanency of the relationship and the extent to which the services performed are a key aspect of the regular business.

No single factor is decisive. All evidence of the degree of control and independence must be considered together. Where the parties want a formal IRS determination of status, either the business or the worker can file Form SS-8.

The DOL economic reality test (FLSA wage and hour)

For Fair Labor Standards Act purposes (minimum wage, overtime, recordkeeping, and child labor protections), the DOL applies an economic reality test rather than the IRS common-law test. The framework is currently in flux:

• The DOL published a final rule on 10 January 2024 (effective 11 March 2024) using a six-factor totality-of-circumstances analysis (opportunity for profit or loss, investments, permanence of the relationship, nature and degree of control, whether the work is integral to the employer's business, and skill and initiative).
• On 1 May 2025, the DOL issued a Field Assistance Bulletin directing agency investigators not to apply the 2024 rule's analysis in current enforcement matters. Current FLSA enforcement relies on Fact Sheet #13 and the reinstated Opinion Letter FLSA2019-6.
• On 26 February 2026, the DOL announced a Notice of Proposed Rulemaking to rescind the 2024 rule and replace it with a streamlined economic reality test centred on two core factors (the nature and degree of control over the work, and the worker's opportunity for profit or loss based on initiative and investment), with additional guidepost factors.

A worker classified as an employee under the FLSA is entitled to minimum wage, overtime, and recordkeeping protections regardless of the IRS classification.

State ABC tests

Several states apply a stricter "ABC test" for state wage and hour, unemployment insurance, or other state-law purposes. California codified the ABC test in Assembly Bill 5 (2019), later refined by Assembly Bill 2257 (2020), now in California Labor Code sections 2775 through 2787.

Under California's ABC test, a worker is presumed an employee unless the hiring entity proves all three of the following:

• The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract and in fact.
• The worker performs work that is outside the usual course of the hiring entity's business.
• The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

All three prongs must be satisfied, and failure on any one prong results in employee classification. Statutory exceptions to the ABC test exist for certain occupations and industries (where the older Borello multifactor test applies instead).

Variants of the ABC test apply for some purposes in Massachusetts, New Jersey, Illinois, Vermont, Connecticut, and several other states.

Misclassification consequences

Engaging a worker as an independent contractor where the relationship is, in substance, one of employment creates exposure across multiple regimes:

• IRS, back federal employment taxes (employer share of FICA, FUTA, and any unwithheld income tax), interest, and penalties.
  Section 530 of the Revenue Act of 1978 provides a safe harbor where the employer had a reasonable basis for the classification, has consistently treated the worker and similarly situated workers as contractors, and has filed all required Forms 1099-NEC for the contractor at the applicable annual reporting threshold (see Payroll & Taxes section below).
• DOL (FLSA), back wages for unpaid minimum wage and overtime, liquidated damages equal to the unpaid wages, and civil penalties.
• State unemployment insurance and workers' compensation, back contributions, interest, and penalties under state law.
• ERISA, exposure to benefit plan claims where a worker classified as a contractor is later determined to be an employee who was wrongfully excluded from an employer's benefit plan.
• State statutory damages, for example, California Labor Code 226.8 imposes civil penalties of $5,000 to $25,000 per willful misclassification violation, in addition to back wages and other remedies.

A worker may be a contractor under the IRS Common Law test, an employee under the DOL economic reality test, and an employee under California's ABC test, all at the same time. Each regime applies its own test for its own purposes.

The classification decision must be tested against every applicable federal and state framework before the engagement begins, not after a dispute arises.

The decision between hiring a US full-time employee and engaging an independent contractor changes everything downstream, including FICA and FUTA contributions, federal and state income tax withholding, 1099-NEC reporting under the new $2,000 threshold effective January 2026, and ERISA benefit plan eligibility.

It also carries triple misclassification exposure that runs through the IRS Common Law test, the DOL economic reality test, and state ABC tests like California Labor Code 2775-2787.

Skuad supports both hiring models from a single platform:

EOR for full-time employees

• Acts as the legal employer across 160+ countries, so you can hire without setting up a local entity
• Supports employment contract generation aligned with local employment laws across supported markets
• Facilitates statutory contribution workflows covering applicable payroll tax, social insurance, and unemployment obligations
• Supports payroll processing in 70+ currencies with automated tax withholding and statutory deductions
• Helps administer statutory benefits, paid leave, and parental entitlements in line with local requirements
• Assists with termination and offboarding, including notice periods and final pay calculations as required locally

Contractor management

• Helps onboard contractors with locally compliant agreements that reduce misclassification exposure
• Supports invoice generation, approval workflows, and payment processing across supported currencies
• Helps flag classification risk through built-in worker classification checks before it becomes a compliance issue
• Facilitates multi-currency payouts across 70+ currencies with no manual reconciliation
• Helps manage contractor records, contracts, and payment history from a single dashboard alongside full-time employees

Full-time or contractor, Skuad supports both. See pricing.

Hiring in the USA

Hiring in the United States runs on a federal floor of immigration, tax, and child-support enforcement requirements, layered with a state-by-state regime that adds withholding certificates, pay transparency disclosures, salary history bans, and ban-the-box restrictions.

Hiring companies in the USA must take care of these compliance steps before and immediately after a new hire's first day of employment.

Form I-9, Employment eligibility verification

Every employer in the United States must complete and retain Form I-9 for every person hired for employment after 6 November 1986, under the Immigration Reform and Control Act of 1986 (IRCA). The requirement applies regardless of citizenship status.

• The employee completes Section 1 (employee information and attestation) no later than the first day of employment, but not before accepting a job offer.
• The employer or authorised representative completes Section 2 within three business days of the employee's first day of employment for pay, after physically examining (or examining under a Department of Homeland Security (DHS) authorised alternative procedure) original documents from List A, or a combination of documents from List B and List C. Where the job lasts less than three days, Section 2 must be completed no later than the first day of employment for pay.
• The employer must not specify which documents an employee must present; the employee chooses from the lists.
• Form I-9 is enforced through Immigration and Customs Enforcement (ICE) inspections under Section 274A of the Immigration and Nationality Act.
• On notice of inspection, the employer must produce the requested I-9 forms within three business days. Civil and criminal sanctions apply for paperwork violations and knowingly employing unauthorised workers.
• Form I-9 is not required for independent contractors or domestic workers in private homes.

E-Verify

E-Verify is a web-based verification system operated by the U.S. Citizenship and Immigration Services (USCIS) and the Social Security Administration that compares Form I-9 information against federal records to confirm employment authorisation.

• Federally voluntary for most private employers.
• Mandatory for federal contractors subject to the Federal Acquisition Regulation E-Verify clause (FAR 52.222-54).
• Mandatory under state law in several states. Alabama, Arizona, Mississippi, and South Carolina require E-Verify for all employers regardless of size.
• Florida, Georgia, Louisiana, North Carolina, Tennessee, and Utah require E-Verify for most private employers above headcount thresholds (for example, Florida 25+, Georgia 11+, North Carolina 25+, Tennessee 35+, Utah 150+).
  Eleven additional states require E-Verify for public employers or public contractors only.

New hire reporting

Under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), 42 U.S.C. 653a, every employer must report newly hired and rehired employees to the state directory of new hires within 20 days of the hire date.

• Reports must include the employee's name, address, Social Security number, and hire date, alongside the employer's name, address, and Federal Employer Identification Number (FEIN).
• Some states impose shorter reporting windows than the 20-day federal floor. Employers filing electronically generally submit two monthly transmissions, not less than 12 nor more than 16 days apart, under 42 U.S.C. 653a(b)(2)(B).
• Federal law does not require reporting of independent contractors, although some states (for example, California for service payments of $600 or more) require contractor reporting.
• The state forwards the data to the federal National Directory of New Hires, used primarily for child support enforcement.
  States are authorised under 42 U.S.C. 653a(d) to impose civil penalties of up to $25 per unreported employee, increasing to up to $500 where the employer and employee conspire to avoid reporting.

State hiring restrictions

There is no federal pay transparency or salary history ban statute. State and local laws drive the obligations, and they vary considerably:

• Pay transparency in job postings: As of 2026, 16+ states and the District of Columbia require employers to disclose salary or wage ranges in job postings, internal promotions or transfers, or to applicants and employees on request. States with active pay transparency laws include California, Colorado, Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Rhode Island, Vermont, Washington, and the District of Columbia.
  Employer-size thresholds vary (New York 4+, New Jersey 10+, California 15+, Illinois 15+, Massachusetts 25+, Minnesota 30+).

• Salary history bans: Approximately 22 states and the District of Columbia, alongside numerous cities, prohibit employers from asking job applicants about their salary history during hiring. Where in force, employers may not rely on prior compensation when setting an offer.
• Ban-the-box laws: More than 37 states and over 150 cities and counties restrict when employers may inquire about an applicant's criminal history, typically delaying the inquiry until after a conditional offer of employment or after a first interview.
  The federal Fair Chance to Compete for Jobs Act of 2019 (Fair Chance Act), effective December 2021, applies the same principle to federal agencies and federal contractors.
• Remote work overlay: Where a remote position can be performed from a covered state, the state's pay transparency, salary history ban, or ban-the-box rules typically apply to the posting, even if the employer is headquartered elsewhere.

Pre-employment screening in the USA sits under the Fair Credit Reporting Act, with strict disclosure, written authorisation, and adverse action requirements, plus state overlays like the California Consumer Privacy Act, the Illinois Biometric Information Privacy Act, and ban-the-box restrictions in 37+ states.

On top of that, Form I-9 must be completed within three business days of the first day of work, E-Verify is mandatory in jurisdictions like Alabama, Arizona, Florida, and Georgia, and new hire reporting under PRWORA runs on a 20-day window. Onboarding integrity becomes a multi-track compliance load before the first paycheck.

Skuad supports background checks as part of the hiring workflow, covering identity verification, employment history, criminal records, and education credentials, so you can see where each candidate stands before the contract is signed.

Probation and termination

The United States has no statutory probationary period for general private-sector employment. Where used, probationary periods are employer-policy arrangements with no legal effect on the at-will rule. Montana's WDEA 12-month default, covered in the Employment in the USA section above, is the only state-law exception.

Termination notice (at-will rule)

Federal and state law do not require advance notice from the employer or employee for an at-will termination. Where the Worker Adjustment and Retraining Notification Act (WARN), a state mini-WARN equivalent, or state final paycheck and separation notice rules apply, the employer must follow the relevant notice and payment requirements.

Federal WARN act

The Worker Adjustment and Retraining Notification Act (WARN), 29 U.S.C. 2101 to 2109, requires covered employers to provide at least 60 calendar days' advance written notice of a plant closing or mass layoff.

• Covered employer: Employers with 100 or more employees, generally not counting employees who have worked less than 6 months in the last 12 months or who work an average of fewer than 20 hours a week.
• Covered events are:
  
  • Plant closing: Permanent or temporary shutdown of a single site of employment (or one or more facilities or operating units within a single site) that results in an employment loss for 50 or more full-time employees during any 30 days.
  • Mass layoff: A reduction in force at a single site of employment during any 30 days for either 50 to 499 full-time employees representing at least 33% of the active workforce, or 500 or more full-time employees (the 33% rule does not apply for the 500+ trigger).
• Notice recipients: Affected employees (or their union representative), the state dislocated worker unit, and the chief elected official of the local government.
• Exceptions: Faltering company, unforeseeable business circumstances, and natural disaster, where the employer documents the basis for the reduced notice in the WARN notice itself.
• Remedies: Where the employer fails to give the required notice, affected employees may seek back pay and benefits for up to 60 days through private legal action in U.S. district court.

State mini-WARN acts

At least 18 states have their own WARN-style statutes. State mini-WARN laws are typically stricter than the federal WARN Act, either by lowering the employer-size threshold, extending the notice period, expanding covered events, or imposing additional obligations. Notable examples include:

• California (Cal-WARN): 75 or more employees, 60 days advance notice, covers plant closings, mass layoffs, and relocations of 100 or more miles.
• New York: 50 or more full-time employees, 90 days' advance notice, triggered where at least 25 employees are affected.
• New Jersey: 100 or more employees, 90 days advance notice, mandatory severance of one week of pay per year of service to every affected worker (the only state mini-WARN with a statutory severance baseline).
• Illinois: 75 or more full-time employees, 60 days' advance notice, triggered where at least 25 employees are affected.
• Maryland: 50 or more employees, 15 or more employees affected.

Final paycheck and unused PTO

There is no federal final paycheck deadline. State law governs when the final paycheck is due and whether accrued vacation or paid time off (PTO) must be paid out.

• Strictest states for involuntary termination:
  1. California Labor Code §201 (immediate payment on termination) and 202 (72 hours for resignation without notice, or immediate where the employee gives 72 hours' notice)
  2. Massachusetts (day of discharge)
  3. Colorado (immediate, where accounting is on-site)
  4. Montana (within 4 hours or end of business day)
  5. Missouri (immediate on demand)
  6. Utah (within 24 hours)
• For most other states, the payment is due by the next regularly scheduled payday.
• No state-specific final paycheck statute for Alabama, Florida, Georgia, and Mississippi defaults to the FLSA next-regular-payday rule.
• California, Massachusetts, Nebraska, North Carolina, North Dakota, West Virginia, and Illinois treat accrued vacation as earned wages that must be paid out on termination. Other states permit forfeiture under a clear written employer policy.

COBRA health insurance continuation

The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose health benefits the right to continue group health coverage for limited periods following qualifying events such as voluntary or involuntary job loss, reduction in hours, transition between jobs, death, divorce, and other life events.

• Private-sector group health plans sponsored by employers with at least 20 employees in the prior year, plus state and local government plans.
• Typically, 18 months for the former employee, and up to 29 months with a Social Security Administration disability determination extension, up to 36 months for spouses and dependents in certain qualifying events such as divorce, legal separation, the employee's death, or the employee becoming entitled to Medicare.
• The qualified beneficiary pays the entire premium, up to 102% of the cost to the plan.
• The employer must provide an election notice; the qualified beneficiary has 60 days to elect coverage from the later of the date coverage ends or the date of the election notice.
• Many states have continuation coverage laws that apply to employers with fewer than 20 employees, where federal COBRA does not apply.

Unemployment insurance separation notification

Many American states require employers to provide information relating to the unemployment insurance benefits and medical insurance perks to their employees before dismissing them.

Examples include the California Employment Development Department Form DE 2320 (For Your Benefit pamphlet) and Form DE 2089 (Notice of Change in Relationship), New York Form IA 12.3 (Record of Employment), Connecticut Form UC-61 (Unemployment Notice), and New Jersey Form BC-10.

The COBRA election notice covers the federal medical insurance continuation requirement.

Severance pay

There is no general severance pay law in the United States. Severance is determined by the employment contract or collectively bargained agreement between the employer and employee.

Two statutory exceptions are applied. The federal WARN Act effectively requires payment of wages and benefits for the 60-day notice period where notice is deficient, and the New Jersey mini-WARN Act mandates statutory severance for covered mass layoffs (detailed in the State mini-WARN section above).

The USA's termination framework looks deceptively simple because of at-will employment, but the real load sits underneath. The federal WARN Act's 60-day notice rule for plant closings and mass layoffs at employers with 100 or more employees, alongside 18+ state mini-WARN Acts with stricter thresholds, sits on top of the at-will default.

Post-termination obligations carry their own weight, including state-by-state final paycheck rules ranging from immediate payment (California, Massachusetts, Colorado) to next regular payday, COBRA continuation coverage for 18 to 36 months at employers with 20 or more employees, and accrued PTO payout rules that vary by state.

Procedural missteps during termination can trigger WARN private actions, state wage claims, and EEOC discrimination charges. Skuad supports compliant termination and offboarding through the shield compliance layer across supported markets, helping align notice periods, severance, and final pay with the relevant local statutory framework.

EOR solution

An Employer of Record (EOR) is the legal employer of record on payroll, on tax filings, and for state and federal employment compliance purposes. The client retains day-to-day direction of the worker's role, deliverables, and performance.

Without an EOR, a company hiring in the United States would need to:

• Form a US legal entity (typically a Delaware C-corporation, Delaware LLC, or a state-specific subsidiary) and qualify to do business in each state where it employs a worker.
• Obtain a Federal Employer Identification Number (FEIN) from the IRS.
• Register for state withholding tax and state unemployment insurance in every state where it has an employee, including states with no individual income tax, since the state unemployment insurance registration is still required.
• Set up payroll, federal and state tax withholding, Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA), and remittance processes.
• Procure a workers' compensation policy in every state of employment (state-mandated under state workers' compensation law).
• Source group health insurance, retirement plans, and other benefits, and administer them under ERISA.
• Track and comply with the 50-state employment law regimes, plus the District of Columbia, alongside the federal floor.

The state-by-state compliance load grows with every new hire location, and most foreign companies expecting fewer than five US hires find that this multi-state overhead outweighs the value of having a local legal presence at that scale.

Skuad acts as the legal employer in the USA, so your company can hire, onboard, and pay employees without entity setup, multi-state registrations, or in-house US payroll infrastructure.

Alongside the US-specific obligations covered above, Skuad supports:

• Hiring across 160+ countries from a single platform, so a US hire in one state and a hire elsewhere sit on the same workflow
• Payroll processing in 70+ currencies with tax withholding and statutory deductions
• Contractor management on the same platform, with built-in worker classification checks to flag misclassification risk before contracts are signed
• Background verification covering identity, employment history, and criminal records before onboarding
• A unified dashboard for contracts, payroll, leave balances, and compliance records

Book a demo to see how Skuad supports your first USA hiring.

Types of visas in the USA

Work authorization in the United States comes from one of several sources. A work visa is not required for every employee. US citizens, lawful permanent residents (LPRs, commonly called green card holders), refugees, asylees, and individuals holding a valid Employment Authorization Document (EAD) are authorized to work without an employer-sponsored visa.

A work visa is required for foreign nationals who do not hold one of these statuses and who need permission to work in the US for a specific employer and duration.

US work-based immigration runs on two tracks. Nonimmigrant (temporary) work visas and employment-based immigrant visas (green cards) for permanent residence.

Nonimmigrant (temporary) work visas

For most nonimmigrant categories, the employer files Form I-129, Petition for a Nonimmigrant Worker, with USCIS. The H-1B, H-1B1, and E-3 categories additionally require a Labor Condition Application certified by the Department of Labor through the Foreign Labor Application Gateway (FLAG) system before the I-129 is filed.

Once the petition is approved, the prospective worker applies for a visa at a US embassy or consulate abroad (handled by the Department of State) and is admitted at a port of entry by US Customs and Border Protection. Canadian TN applicants may apply for admission directly at a port of entry without a consular visa.

Employment-based immigrant visas (green cards)

US employment-based permanent residence is structured across five preference categories.

For EB-2 and EB-3, the employer-sponsorship path begins with PERM labor certification from the Department of Labor, which confirms that no qualified US workers are available for the position at the prevailing wage.

Once PERM is certified (where required), the employer files Form I-140, Immigrant Petition for Alien Worker, with USCIS. The foreign national then either adjusts status from within the US (Form I-485) or completes consular processing abroad through the Department of State. EB-1A (extraordinary ability) and EB-2 NIW allow self-petitioning without an employer sponsor.

Work permits

In the United States, what other countries call a "work permit" is the Employment Authorization Document (EAD). USCIS issues the EAD on Form I-766 after approving Form I-765, the Application for Employment Authorization.

The EAD is a photo card that demonstrates both identity and employment authorization, and it serves as a List A document for Form I-9 employment eligibility verification (covered in the Hiring in the USA section above).

Two paths to US work authorization

US work authorization comes from two main mechanisms:

1. Work visa tied to a specific employer: Authorization is granted through the visa petition itself, filed by the employer on Form I-129 (most nonimmigrant categories), and is tied to that employer. Common categories include H-1B, H-2A, H-2B, L-1A, L-1B, O-1, E-1, E-2, E-3, and TN under USMCA. These are covered in the Types of Visas section above.
2. EAD on Form I-766: Authorization is granted to the individual under a specific eligibility category and, for most categories, allows open-market employment with any US employer.

Common EAD categories used in hiring:

Self-petition employment-based green card categories

US employment-based permanent residence usually requires an employer sponsor. Three categories allow the foreign national to self-petition without a job offer or employer sponsorship (all covered in the Types of Visas section above):

• EB-1A (extraordinary ability)
• EB-2 with National Interest Waiver (NIW)
• EB-5 (immigrant investors)

The O-1 visa is sometimes confused with self-petition categories, but the O-1 requires an employer or US agent to file the Form I-129 petition.

Processing times

Form I-765 processing time varies by eligibility category, USCIS service center, and current workload. Times typically run from a few weeks to several months. Applicants should check the official USCIS Check Case Processing Times page for current category-specific times rather than rely on fixed estimates.

US work authorisation runs across two parallel mechanisms. First, Employer-sponsored nonimmigrant petitions (H-1B with its annual cap and lottery, L-1A and L-1B intracompany transfers with qualifying relationship and one-year prior-employment tests, O-1, E-1/E-2/E-3 treaty visas, and TN under USMCA).

Second, Individual Employment Authorization Documents (Form I-765 leading to a Form I-766 EAD) for F-1 OPT, STEM OPT, H-4 EAD spouses, adjustment-of-status applicants, asylees, TPS holders, and DACA recipients.

Each route runs through USCIS, sometimes with DOL Labor Condition Application certification through FLAG, and Department of State consular processing or port-of-entry admission by U.S. Customs and Border Protection (CBP). Coordinating petitions, LCAs, and EAD applications across these stages adds weeks to any foreign national hire.

Skuad supports the work permit process across supported markets, including:

• Supporting work visa and residence permit applications for foreign nationals joining your team
• Helping coordinate visa documentation with the relevant immigration authorities
• Assisting with employer-side accreditation, labour market tests, and prevailing wage steps where they apply
• Helping track documentation requirements and renewal deadlines across the full permit lifecycle
• Helping keep your team aligned with immigration documentation requirements as local policy and renewal rules change

For foreign national hires whose first day depends on a clean petition or EAD, the gap between the HR team and the immigration paperwork is where most timelines slip.

Book a demo to see how Skuad supports work permits and immigration for USA hires.

Payroll and taxes in the USA

US payroll runs on a federal floor and a state layer. Federal payroll taxes apply uniformly across all 50 states and the District of Columbia. State payroll taxes (state income tax withholding, state unemployment insurance, and workers' compensation) vary significantly by state.

Federal payroll tax structure

The federal payroll tax framework has three components:

Employers in credit reduction states (states with outstanding federal unemployment insurance loans) pay an additional FUTA amount on Schedule A of Form 940.

State payroll taxes

• State income tax withholding applies in 41 states plus the District of Columbia. Nine states have no broad-based personal income tax in 2026: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire fully repealed its Interest & Dividends Tax effective 1 January 2025.
• Washington imposes a 7% tax on individual long-term capital gains allocated to Washington state above an annual standard deduction. Effective tax year 2025, gains above $1 million are subject to an additional 2.9% rate. The tax applies only to individuals and does not tax regular wages.
• State unemployment insurance (SUI, also called SUTA) is paid by the employer in nearly every state. Rates, wage bases, and experience-rating formulas vary by state. A small number of states (Alaska, New Jersey, and Pennsylvania) require a small employee SUI contribution alongside the employer contribution.
• Workers' compensation insurance is mandatory in nearly every state for nearly every employer. Texas is the only state where private employers may opt out of the state workers' compensation system. Rates vary by state and industry classification code.

Federal corporate income tax

The federal corporate income tax is a flat 21% rate applied to taxable income of C corporations, established by the Tax Cuts and Jobs Act of 2017 and unchanged for 2026 (P.L. 119-21 permanently extended the rate structure originally enacted by P.L. 115-97).

Six states that do not impose a corporate income tax are Nevada, Ohio, South Dakota, Texas, Washington, and Wyoming. Forty-four states plus the District of Columbia levy a corporate income tax. New Jersey has the top effective state corporate income tax rate at 11.5%. The corporate income tax sits on the corporation's net income, separate from payroll taxes on wages.

Withholding on US-source payments to foreign persons (FDAP)

A 30% statutory withholding rate applies to US-source FDAP (Fixed, Determinable, Annual, or Periodical) income paid to foreign persons under Internal Revenue Code 1441 and 1442. FDAP income includes interest, dividends, royalties, rents, and certain other periodic income.

The 30% rate may be reduced by an applicable tax treaty between the United States and the recipient's country of residence. This is reported on Form 1042 and Form 1042-S. It does not apply to wages paid to US citizens, lawful permanent residents, or non-residents with US work authorization, which are subject to standard payroll tax withholding.

Key payroll tax forms

• Form W-4: Employee's Withholding Certificate, it is completed by the employee at hire to set federal income tax withholding elections
• Form W-2: Annual Wage and Tax Statement issued to each employee and filed with the Social Security Administration
• Form 1099-NEC: Annual reporting form for payments to independent contractors (threshold detail covered in the Contractors vs Full-Time Employees section above)
• Form 941: Employer's Quarterly Federal Tax Return, used to report federal income tax withholding, Social Security, and Medicare
• Form 940: Employer's Annual Federal Unemployment (FUTA) Tax Return
• Form I-9: Employment Eligibility Verification (covered in the Hiring in the USA section above)

Bonuses and supplemental wages

Bonuses are common in US compensation, including annual performance bonuses, year-end bonuses, sign-on bonuses, retention bonuses, commission, and equity-based incentive pay. Bonuses are treated as supplemental wages under IRS Publication 15 (Circular E), Employer's Tax Guide.

Federal income tax may be withheld at the flat 22% supplemental rate on supplemental wages up to $1 million per employee per calendar year, or through the aggregate method (combining the supplemental wage with regular wages for the pay period and applying standard withholding tables).

A mandatory 37% rate applies to supplemental wages exceeding $1 million per employee per calendar year. Supplemental wages are subject to FICA (Social Security and Medicare), the same as regular wages, plus state income tax withholding where applicable.

Total cost-to-employer in the USA runs well above gross salary, and the multi-state structure adds another layer. Federal payroll taxes stack first, 6.2% employer Social Security on wages up to $184,500 in 2026, 1.45% employer Medicare with no cap, and 0.6% effective FUTA on the first $7,000 of wages after the state UI credit.

State payroll costs follow, with state unemployment insurance rates that vary widely by state and experience rating, and workers' compensation premiums tied to state and industry classification codes. Corporate income tax applies separately, at a federal 21% rate plus state corporate income taxes ranging up to 11.5% in New Jersey.

Skuad's employee cost calculator helps estimate the cost of hiring across supported markets, including employer social and tax contributions, statutory deductions, and net-to-gross conversion, so finance teams can build a clean total-cost view into headcount plans without manually modelling each country's contribution rules.

Incorporation

For a foreign founder, the two practical entity structures for setting up a business in the United States are:

• C-Corporation (typically a Delaware C-Corp for venture-backed startups, or another state C-Corp)
• Limited Liability Company (LLC) (single-member or multi-member)

An S-Corporation is not available to nonresidents. Under Internal Revenue Code  1361(b)(1)(C), a corporation cannot elect or maintain S-Corp status if it has a nonresident as a shareholder.

S-Corp shareholders must be US citizens (lawful permanent residents or individuals meeting the substantial presence test under Internal Revenue Code IRC 7701(b)). Sole proprietorships and general partnerships are also generally not used by foreign founders because they provide no limited liability protection and create personal US tax filing obligations for the foreign owner.

When to choose a C-Corp vs an LLC

State of formation

The state of formation determines the entity's governing corporate law, and not where the business operates. The most common choices for foreign founders are:

• Delaware: The standard choice for C-Corporations raising venture capital, due to the Delaware General Corporation Law, the Delaware Court of Chancery, and investor familiarity
• Wyoming, Nevada, and Delaware: Popular for LLCs, with low filing fees and privacy features
• Home state: If the business operates primarily in one state and is not raising outside capital, forming in the operating state can simplify ongoing compliance and avoid the need for foreign qualification

The formation steps

1. File the formation document with the Secretary of State of the formation state: A Certificate of Incorporation for a C-Corp, or Articles of Organization (also called a Certificate of Formation) for an LLC. Processing times vary by state and filing method.
   Delaware standard processing typically takes one to two weeks, and expedited service is available for 24-hour or same-day processing for an additional fee. Wyoming, Nevada, and other states vary similarly.
2. Designate a Registered Agent in the formation state: Every US entity is required to maintain a Registered Agent in the state of formation to receive service of process and official correspondence. Commercial registered agent services are widely available.
3. Obtain an EIN: Federal Employer Identification Number (EIN, also called FEIN) from the IRS by filing Form SS-4, Application for Employer Identification Number.
   The online application is generally unavailable for foreign applicants because it requires the Responsible Party to have a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). Foreign applicants typically file Form SS-4 by fax or mail, which takes longer (often four to six weeks) than online processing.
4. Qualify to do business in any other state where the entity operates: If the entity is formed in one state and operates in another, it must register as a "foreign entity" in the operating state by filing a Certificate of Authority application with that state's Secretary of State.
5. Register for state taxes where applicable: State income tax withholding registration if hiring employees (covered in Payroll & Taxes section above), sales tax permit if selling taxable goods or services, and state unemployment insurance (SUI) registration if hiring employees.
6. Procure workers' compensation insurance if hiring employees (state-mandated in nearly every state, covered in the Payroll & Taxes section above).
7. Open a US business bank account: US banks generally require the EIN, formation documents, and often in-person presence of the company's beneficial owner or authorized signer, which is a real practical hurdle for foreign founders.

Annual federal reporting for foreign-owned single-member LLCs

A US single-member LLC owned by a foreign person is treated as a disregarded entity for income tax purposes but is treated as a corporation for federal reporting purposes under Treasury Regulation 1.6038A-1, effective for tax years beginning on or after 1 January 2017. The foreign-owned single-member LLC must file:

• IRS Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation, reporting transactions between the LLC and its foreign owner or other related foreign parties
• Together with a pro forma Form 1120 marked "Foreign-owned U.S. DE" across the top
• Annually, due 15 April for calendar-year entities (extensions available)

Reportable transactions include capital contributions, distributions, loans, payments for services, and other movements of funds between the LLC and the foreign owner.

The penalty for failing to file or filing incompletely is $25,000 per form per year under IRC 6038A(d), with continuation penalties for failures persisting more than 90 days after IRS notification. This is a strict reporting obligation regardless of whether the LLC had any income or activity.

Entity formation in the USA carries downstream weight beyond the initial Certificate of Incorporation or Articles of Organization filing.

Formation alone is a stack of work steps, four-to-six-week timelines on Form SS-4 EIN applications submitted by fax or mail, registered agent requirements in every state of formation, foreign qualification filings in each operating state, state-by-state tax and SUI registrations, and mandatory workers' compensation procurement in 49 states.

Additionally, US business bank account opening often requires the in-person presence of the beneficial owner. Ongoing federal reporting adds another layer; foreign-owned single-member LLCs must file annual Form 5472 and pro forma Form 1120, with $25,000 per-form penalties for failure.

Most foreign companies expecting fewer than five US hires find that this timeline and the multi-state ongoing compliance load outweigh the value of having a local legal presence at that scale.

Skuad acts as the legal employer in the USA, so foreign companies can hire and pay employees across multiple states without entity setup, multi-agency registrations, or ongoing local compliance overhead. The incorporation decision can be revisited once the local team reaches a size that justifies it.

Book a demo to see how Skuad supports USA hiring without incorporation.

Professional Employer Organization (PEO) vs EOR

The headline distinction between a Professional Employer Organization (PEO) and an Employer of Record (EOR) is the legal employment relationship. A PEO operates under a co-employment arrangement. An EOR acts as the legal employer of record.

The practical consequence for a foreign company is that a PEO requires the client to already have a US legal entity with its own Federal Employer Identification Number (FEIN), while an EOR does not.

A PEO supports a range of HR functions like compliance and payroll for your company as a co-employer.

Under the co-employment arrangement, the PEO is the administrative co-employer for payroll, employment tax filings, benefits administration, and HR compliance, while the client retains direction and control of the day-to-day work and the operational employment decisions.

The PEO uses its own FEIN to file federal employment taxes on the wages of worksite employees, and the client retains its own FEIN as the legal worksite employer.

A subset of PEOs are Certified Professional Employer Organizations (CPEOs), which is a voluntary IRS certification program established by the Small Business Efficiency Act (SBEA) of 2014 and codified at Internal Revenue Code 7705(a).

Certification requires the PEO to meet background, experience, business location, financial reporting, tax compliance, and bonding requirements.

Under the SBEA, a CPEO is solely responsible for federal employment taxes (FICA Social Security and Medicare contributions, FUTA federal unemployment tax, and federal income tax withholding) on the wages it pays to worksite employees.

A non-certified PEO does not have this statutory tax responsibility transfer, and the IRS may pursue the client if the PEO fails to remit. Fewer than 10% of US PEOs hold CPEO status.

An EOR acts as the legal employer of record on payroll, employment tax withholding and remittance, employment contracts, statutory and supplemental benefits, state-mandated insurance, and federal and state employment compliance. The client retains direction and control of the day-to-day work and selects the candidate.

The EOR scope typically does not include recruiting. The client identifies and selects the candidate, whereas the EOR supports the employment lifecycle (onboarding, employment contract, payroll, employment taxes, benefits administration, statutory compliance, and termination) once the candidate is hired.

PEO vs EOR at a glance

EOR services in the USA simplified

The USA's employment framework follows a federal floor and a 50-state plus DC overlay. On top of that sit Form I-9 verification within three business days, FICA contributions at 6.2% Social Security and 1.45% Medicare on both sides, FUTA at an effective 0.6% after the state UI credit, and state unemployment insurance and workers' compensation in every state of employment.

The federal WARN Act and 18+ state mini-WARN equivalents apply at termination, and the work visa system fragments across H-1B, L-1, O-1, E-3, TN, and EAD-based authorisation, all from the first hire.

Getting any of these wrong triggers IRS payroll tax exposure, DOL FLSA back-wage actions, state wage claims, and EEOC discrimination charges.

Skuad acts as the legal employer in the USA, so you can hire your US and foreign-national employees and meet statutory compliance requirements without forming a Delaware entity, obtaining a Federal Employer Identification Number, or registering for state withholding, SUI, and workers' compensation in every state of employment.

Across supported markets, the platform covers employment contracts, payroll in 70+ currencies, statutory contributions, immigration, and termination support.

Book a demo to see how Skuad supports hiring in the USA.

FAQs

1. What is an Employer of Record in the USA?

An employer of record in the USA is a company that acts as the legal employer of your workers for payroll, federal and state tax filings, and compliance, while you direct their work.

2. How much does an Employer of Record in the USA cost?

EOR fees in the USA typically run between $200 and $1,000 per employee per month. That fee sits on top of gross salary and employer costs like 6.2% Social Security, 1.45% Medicare, FUTA, state unemployment insurance, and workers' compensation.

3. Can a foreign company hire employees in the US without a local entity?

A foreign company can hire US employees through an employer of record without forming an entity or registering for state withholding in each state.

4. What are the penalties for misclassifying a worker in the US?

Misclassification exposes you across several regimes at once: back FICA and FUTA taxes from the IRS, back wages and liquidated damages from the DOL under the FLSA, and state penalties. California Labor Code Section 226.8 alone imposes $5,000 to $25,000 per willful violation.

5. Is an EOR or setting up a US entity better for hiring in the USA?

An EOR fits foreign companies expecting fewer than five US hires, since entity setup means a four-to-six-week FEIN application by fax, a registered agent, foreign qualification per state, and multi-state tax registrations. An entity makes sense once the local team is large enough to justify that load.