Linx Team · 8/20/2026
So your company has decided to hire someone in the United States. Congratulations. That is a big step, and it usually means business is going well enough that you need more hands on deck. But here is the thing. Before you can pay that new hire a single dollar, there is a surprising amount of groundwork to sort out. Payroll is not the first step. It is closer to the last one. Think of it like building a house. You do not start with the paint colour. You start with the foundation. If you are a foreign company hiring in the US for the first time, this guide walks you through the decisions that need to happen before payroll even enters the conversation. No jargon left unexplained, we promise.
The very first fork in the road is this: do you want to set up a legal entity in the US, or do you want to hire someone without one? Setting up an entity usually means registering a company (often a subsidiary) in a specific US state. This gives you a real, legal presence in the country. It also comes with its own paperwork, state filings, tax registrations, and ongoing compliance work. It can take weeks or months, and it is not cheap. The alternative is using an Employer of Record, often shortened to EOR. An EOR is basically a company that legally employs your worker on your behalf in the US, while you manage their day-to-day work. The EOR handles the contracts, payroll, taxes, and benefits, so you do not need to set up a local entity at all. Many foreign companies start this way because it is faster and lowers the risk of getting something wrong in a legal system they are not familiar with. This decision affects everything that follows, so it is worth spending real time on it rather than rushing through.
Next up is a question that sounds simple but trips up a lot of companies: is this person an employee or an independent contractor? In the US, this is not just a label you pick because it sounds convenient. Misclassifying an employee as a contractor can lead to fines, back taxes, and legal trouble down the line. The government looks at things like how much control you have over the person's schedule, tools, and work methods. If you are directing their day closely, they are probably an employee, not a contractor, no matter what the contract calls them. Getting this right early saves you from a painful and expensive correction later.
Here is something that catches a lot of foreign employers off guard: the United States does not have one single set of employment laws. Each state sets its own rules on things like minimum wage, overtime, paid leave, and termination notice. So a company hiring someone in Texas will face different rules than one hiring someone in California. Before you can even think about payroll, you need to know which state your employee will be working from, because that determines the labour laws, tax rates, and benefit requirements that apply to them. This is one of the more confusing parts of US employment law for outsiders, and it is exactly why many companies lean on local experts or an EOR to keep things straight.
Before anyone gets paid, you need to confirm they are legally allowed to work in the United States. This applies whether the person is a US citizen, a green card holder, or someone on a work visa. Every new hire in the US has to complete something called Form I-9, which verifies their identity and confirms they are authorized to work. Skipping this step or getting it wrong is not a small mistake. It is a compliance issue that can bring real penalties. If you are sponsoring a visa for someone, that adds another layer of planning, since visa processes can take time and have their own rules around timing and paperwork.
Salary numbers alone do not tell the full story in the US. You also need to think about benefits, because in America, benefits are a much bigger part of the employment deal than in many other countries. Health insurance is the big one. Unlike countries with national healthcare systems, most Americans expect their employer to offer some kind of health coverage. On top of that, you will want to think about retirement plans (often called 401k plans), paid time off, and sometimes things like life insurance or wellness perks. Getting this wrong is not just a legal risk; it is also a hiring risk. Talented candidates in the US often compare offers based on the full package, not just the paycheck.
Once you know whether you are setting up your own entity or using an EOR, and once you know which state your employee is in, you need the right tax registrations in place. This usually includes getting a federal Employer Identification Number, often called an EIN, along with state-level tax accounts for income tax withholding and unemployment insurance. Each state has slightly different requirements, and missing one can delay your ability to run payroll legally. If you are using an EOR, this part is largely handled for you, since the EOR is technically the legal employer. If you are running your own entity, this step falls entirely on you.
The US has ongoing reporting requirements even after someone is hired. This includes things like reporting new hires to state agencies, filing quarterly tax reports, and keeping records for things like workplace safety and equal employment practices. None of this is glamorous, but skipping it is how small oversights turn into bigger legal headaches. It is worth building a simple compliance checklist before your first employee starts, so nothing slips through the cracks.
Once all of the above is settled, you finally get to payroll itself. This includes setting the pay schedule, calculating tax withholdings, handling deductions for benefits, and making sure the employee actually gets paid correctly and on time. Payroll feels like the finish line, but really it is just the natural result of everything you sorted out earlier. Rush into payroll without handling the steps before it, and you are likely to run into compliance issues, unhappy employees, or both.
Hiring in the US as a foreign company is exciting, but it comes with more moving parts than most people expect. Entity setup or an EOR, worker classification, state-specific laws, work authorization, benefits, tax registration, and compliance reporting all need attention before payroll can even begin. The good news is that none of this has to be figured out alone. Many companies choose to work with an Employer of Record specifically because it removes the guesswork from this entire process, letting them focus on the work their new hire was brought on to do in the first place.