How to Hire Employees in the United States: Costs, State Rules and EOR Options
What a first US employee costs in federal payroll tax and California levies, which rules the state adds on top of federal law, how at-will dismissal really works, and when an employer of record beats your own entity.
By One payroll, fifty sets of state rules
A foreign company can hire in the US through its own subsidiary, an employer of record, a contractor agreement or, once a subsidiary exists, a PEO. The state where the employee sits decides most of the rules: minimum wage, overtime, sick leave, final pay and the contractor test. For one to five people spread across states, an employer of record is usually the cheaper route, because each new state means new tax accounts and new filings. Read our EOR vs PEO comparison before signing with either.
Statutory cost is low by international standards: 7.65% for Social Security and Medicare, plus federal and state unemployment tax on the first $7,000 of wages in California. The bigger number is voluntary. Health insurance averaged $9,325 a year for single cover in 2025 (KFF), of which employers paid about $7,885. Workers’ compensation insurance is compulsory in California from the first employee and priced by job class.
Employment terms and working conditions
Federal law sets a low floor and California rebuilds most of it higher, so the six figures below are where offer letters drafted from a federal template go wrong.
Cost of employing someone in the United States
The percentage falls as pay rises, because unemployment tax stops at $7,000 of wages and Social Security stops at $184,500, leaving only Medicare uncapped.
$406 a month. At $60,000 a year this hire sits below California’s $70,304 exempt floor, so they are owed daily and weekly overtime even on a salary. Budget for timesheets or raise pay above the floor.
$636 a month. Unemployment tax is shown averaged, but in practice all $287 a year is paid in the first month because $8,000 already exceeds the $7,000 wage base. Employer health cover typically adds more than all four lines combined.
$1,267 a month on average. Wages pass the $184,500 base in October, so November and December carry Medicare only. With the 2027 base at $192,300, the same salary costs about $40 more next year.
Federal: Social Security 6.2% on wages up to $184,500 in 2026 ($192,300 from 1 January 2027, SSA announcement of 14 October 2026); Medicare 1.45% with no cap (the extra 0.9% above $200,000 is employee-only); FUTA 6.0% less a 5.4% state credit, net 0.6% on the first $7,000 (26 U.S.C. s.3301). California employers lost part of that credit for 2025 (1.2% reduction, net 1.8%, paid with Form 940), and the Department of Labor sets the 2026 reduction after 10 November 2026; a 1.5% reduction would add $105 a year per employee, or $371 if California also pays the 3.8% benefit cost rate add-on without a waiver. California: new-employer UI rate 3.4% and Employment Training Tax 0.1%, both on the first $7,000 (EDD, Schedule F+ for 2026). State Disability Insurance (1.3% in 2026, no wage cap) is withheld from the employee and is not an employer cost. When we checked EDD’s 2026 rate notices in October 2026, California still had no other wage-based employer levy, so the fourth line reads None. Not included: workers’ compensation premiums (compulsory, rate set by job class) and health insurance (not statutory below 50 full-time equivalents). Other states differ, for example New York taxes the first $17,600 for unemployment and Washington, Oregon, Colorado and Massachusetts add an employer share of paid leave premiums: compare them on our employer payroll tax rates tool.
Price your hire, line by line
Pick a country and a salary. Every statutory contribution, ceiling and accrual is applied separately, so the total is close to what a provider will actually invoice.Compare other countries
Costs most calculators leave out
Private health cover, equipment stipend, meal or transport allowance.
Typically $0 to $2,000 depending on provider and country.
Refundable, but it ties up cash. Most providers hold one to two months.
Example. Change any field to make it yours.
Total employer cost, per employee per month
Monthly breakdown
Upfront and one-time costs
EOR or your own entity
Statutory rates current as of . Exchange rates indicative as of . Contribution ceilings, regional variation, employee age and collective agreements all shift the real figure. Use this to build a budget, then validate against a written quote.
Four ways to hire in the United States
The choice decides who registers in each state, who carries California’s contractor test, and whether your company has a US tax presence.
Misclassification risk. California applies the ABC test (Labor Code s.2775, from AB 5): a worker is an employee unless the work is outside your usual business, free from your control, and done by someone running an independent trade. Willful misclassification costs $5,000 to $15,000 per violation, and $10,000 to $25,000 per violation for a pattern or practice (Labor Code s.226.8), on top of back taxes. Federally, DOL published a proposal on 27 February 2026 to replace its 2024 test with the 2021 core-factor test; no final rule had been published when we checked on 23 October 2026, though DOL’s regulatory agenda targets October 2026. See misclassification penalties by country.
Statutory leave and benefits
No federal law requires paid vacation, paid holidays or paid parental leave. In California the state insurance fund pays family leave, while the employer pays sick days and must cash out any vacation it grants.
Sources: California Labor Code s.227.3 (vacation payout) and s.245 to 249 (paid sick leave, DIR guidance); Government Code s.12945 (pregnancy disability leave) and s.12945.2 (CFRA); EDD Paid Family Leave benefit page (8 weeks, $50 to $1,765 a week); 29 U.S.C. s.2611 (FMLA); IRC s.4980H (ACA employer mandate); Labor Code s.3700 (workers’ compensation). “No entitlement” on the CFRA card means the leave is unpaid by the employer; pay comes from PFL or SDI. Other states run their own paid leave programmes, for example New York, Washington and Massachusetts.
Termination and offboarding
Employment is at-will in 49 states, so cost is decided by protected grounds, layoff size and the state’s final pay deadline, not by notice or severance formulas.
Sources: California Labor Code s.2922 (at-will presumption); Worker Adjustment and Retraining Notification Act, 29 U.S.C. s.2101 to 2109; Cal-WARN, Labor Code s.1400 to 1408 (notice content expanded by SB 617 from 1 January 2026); Montana Wrongful Discharge from Employment Act, MCA s.39-2-901 to 915. At-will dismissal is still unlawful if it rests on a protected ground (Title VII, ADEA, ADA, California FEHA) or retaliates against a complaint. Final pay in California: on the last day for a dismissal, within 72 hours for a resignation without notice, including all accrued vacation (Labor Code s.201 to 203); a late payment triggers a day’s wages per day for up to 30 days. Other states set later deadlines, often the next regular payday. COBRA continuation applies at 20 or more employees, Cal-COBRA from 2 to 19.
Work permits and foreign hires
Anyone who is not a US citizen or green card holder needs a status that names the employer. Some EORs file H-1B, O-1 and TN petitions, but none can use the L-1, which needs your own corporate link.
From decision to first payroll in 3 weeks
Through an EOR, a California hire with US work authorisation can be paid on the next semi-monthly payday about three weeks after you sign.
Fix state and salary
Confirm the state and city where the person will work, then set pay against the local minimum and California’s $70,304 exempt floor before choosing salaried or hourly status.
Sign with the EOR
Check the EOR is registered with California EDD, carries workers’ compensation, and quotes health plan premiums separately from its fee. Agree who funds any deposit.
Issue the offer
The offer letter states at-will status and pay; the EOR adds the Labor Code s.2810.5 wage notice and the SB 294 rights notice. Avoid training repayment clauses barred by AB 692.
Complete onboarding forms
Employee completes Form W-4, California DE 4 and I-9 section 1 by day one; the EOR verifies documents within 3 business days and files the DE 34 new hire report within 20 days.
Run first payroll
Pay on the semi-monthly schedule (work from the 1st to 15th is due by the 26th). Check the payslip shows Social Security, Medicare and SDI withholding and the sick leave balance.
Best EOR providers in the United States
Four providers we have reviewed that employ in the United States. Full scoring and the ranked list sit on the United States EOR page.
Employs through its own US entities and sells a separate US PEO from $125 a month for when you open a subsidiary. Highest EOR list price of the four.
The former Velocity Global, US-headquartered with long experience of multi-state payroll. Publishes $399 a month per employee and says that price covers platform access and compliance support; get the US quote in writing.
Lowest published US price at $199 a month and covers all 50 states. Health insurance premiums are not part of the $199 fee, so ask for a quote that includes them.
Lists two US entities in its own network and prices about 89% of its countries the same: $459 on an annual contract, $499 month to month. US benefits plans cost extra.
Some links are referral links. We may earn a fee if you sign up, at no cost to you. It never changes our rankings.
All guides for hiring in the United States
Hiring guides for other countries
Compare employer costs, dismissal rules and EOR options in 14 more countries. Each guide is checked against official sources.
FranceHiring guide, 41.5% employer cost
GermanyHiring guide, 22.5% employer cost
NetherlandsHiring guide, 27.4% employer cost
SpainHiring guide, 54.2% employer cost
United KingdomHiring guide, 15.9% employer cost
AustraliaHiring guide, 20.3% employer cost
IndiaHiring guide, 5.7% employer cost
PhilippinesHiring guide, 17.1% employer cost
SingaporeHiring guide, 17.2% employer cost
TaiwanHiring guide, 17.1% employer cost
Questions employers ask about hiring in the United States
These are the points where advice written for one state, or before the 2026 changes, most often misleads foreign employers.
Do I have to offer health insurance to my first US employee?
No. The Affordable Care Act penalty applies only to employers with 50 or more full-time equivalents. In practice, a professional hire will expect it: the 2025 KFF survey put average single cover at $9,325 a year, with the employer paying about $7,885. That is more than the $636 a month of statutory cost on an $8,000 salary in California. Ask each EOR for the plan premium and its admin charge as separate lines, because benefits are rarely in the headline fee.
Can I pay a California employee a salary and skip overtime?
Only if the salary is at least $70,304 a year in 2026 ($72,384 from 1 January 2027) and the duties pass the exemption test. The federal floor of $684 a week, restored on 13 May 2026, does not help in California, which applies its own higher figure. Below the state floor, the person earns 1.5x after 8 hours in a day or 40 in a week and 2x after 12 hours in a day, even with a job title such as manager.
Does at-will mean a dismissal costs nothing?
There is no statutory notice or severance outside a contract, but three costs remain. California requires final wages on the last day of a dismissal, including every unused vacation day; late payment adds a day’s wages for each day late, up to 30 days. A dismissal tied to a protected ground or a complaint can lead to a discrimination or retaliation claim. Montana requires good cause once probation ends. Employers often pay severance in exchange for a signed release, which is a commercial choice, not a legal duty.
Is the $100,000 H-1B fee still payable?
Not at the time we checked in October 2026. A Massachusetts federal court vacated the fee on 8 June 2026 and the First Circuit refused to pause that ruling on 24 July. The President renewed the proclamation on 18 September 2026 for another year, but a California federal court blocked the renewed fee on 30 September 2026 (Global Nurse Force v. Trump). The government has appealed to the First and Ninth Circuits, so the fee could return. It never applied to change-of-status petitions approved inside the US, such as F-1 students moving to H-1B. Check the status before filing, and read our EOR visas and work permits guide.
Which state’s rules apply to a remote employee?
Generally the state where the person physically works, not where your customers or managers are. A designer living in Sacramento is covered by California minimum wage, overtime, sick leave and final pay rules, and the employer pays California unemployment tax. If the person moves state, the employer must register there before the next payroll. An EOR already holds accounts in most states, which is the main reason it suits a team scattered across several of them.
Can I keep a Californian on a contractor agreement instead?
Rarely, if they work on your core product. California’s ABC test presumes employment unless all three parts are met, and part B fails whenever the work is part of your usual business. A software company engaging a developer full-time cannot meet it. The penalty for willful misclassification is $5,000 to $15,000 per violation, plus unpaid payroll tax and wage claims. Our guide to moving a contractor to an EOR covers the conversion.
Does hiring through an EOR create a US tax presence for my company?
The EOR removes the payroll and employment registrations, but not corporate tax exposure. A US employee who signs contracts or closes deals for you can create a permanent establishment under a tax treaty, or nexus for state income tax, whoever employs them. Keep sales authority with the foreign parent where possible and review state nexus once revenue grows. Our page on permanent establishment risk explains the test.
Ready to hire in the United States?
Compare the providers that employ in the United States on pricing, entity ownership and onboarding speed.