The United States of America has the largest economy in the world. Known for its business friendly laws, the US is home to major tech companies like Apple, Google, and Meta, as well as Fortune 500 companies, major banks, Hollywood, and some of the world’s best universities. The country is a leader in a number of industries, including media, sports, tech, and finance.
Payroll in the US encompasses payments, onboarding, termination, severance, benefit management, deductions, compliance, and taxes for full-time employees and contractors.
Companies have two options for running payroll in the US:
1) open an entity and partner with a PEO service provider for payroll or
2) use a global EOR service like Via.
Payroll in the US can be tricky to figure out if you are unfamiliar with how income taxes, sales tax, and the country's social security system breaks down. Plus, each of the 50 states has its own laws and regulations.
The USA does not have flat rates for how payroll is broken down. Businesses need to be mindful of how each individual state’s tax breaks down, while also paying the standard federal tax that is required across the vast nation.
This article gives businesses expanding to the USA an overview of how to set up payroll compliantly, as well as some of the options for administering payroll.
Typically, companies hiring employees in the United States need to establish a subsidiary, entity, or branch office prior to onboarding employees. However, many companies are now choosing to outsource their payroll using an EOR service like Via, which handles the entire HR and payroll process.
Whether you are a small business planning to hire a few employees or a giant corporation, setting up payroll in the United States will always have a few standard procedures:
Have employees complete a W-4 form for tax identification purposes
Sign up for an Employer Identification Number (EIN)
Choose a payroll schedule that fits your business
Calculate and withhold income taxes
Pay payroll taxes
File tax forms and employee W-2s at the end of the year
Unlike many European and Latin American countries, there is no standard USA payroll cycle. US-based employers have a wide range of liberties, so they can choose to pay employees weekly, bi-weekly, semi-monthly, or monthly.
Employers can choose to direct deposit paychecks into their employees accounts or give them hard copy checks. Either way, employers should always give their employees a pay slip that breaks down their deductions from each payroll period.
Social security and medicare are a flat rate in the United States. They are a federal withholding and cover the country’s social security and medicare system.
Employers and employees both pay 6.2% of an employee’s salary into social security and 1.45% for medicare. This is a total contribution of 7.65% for both employer and employee.
In the United States, there is a flat rate of 21% that corporations are obligated to pay when calculating their payroll each year.
In the US, there is no standard value added or sales tax. The sales tax varies based on state regulations. Most sales taxes range between 4-7%. Some states like Delaware and Oregon don’t have sales tax on goods and services. However, they might still have local sales tax in certain cities and municipalities.
In addition to federal withholding, states will also have a withholding tax on the state level that is deducted from payroll. The state tax will vary based on where you work and where you live. Some states choose to not have income taxes.
Some cities and areas will go even further and have local or wage taxes that are further deducted from payroll. This money is meant to go towards public services.
The United States has 7 different tax brackets for income withholding for payroll. These withholdings will depend on the employee’s salary.
Withholding tax bracket
$539,900 and above
To calculate deductions for employees and employers for USA payroll, the IRS has a calculator on their website that easily breaks down payroll deductions.
To pay US employees from a foreign country like Canada or the UK, there are a few options.
Foreign companies can use remote payroll services that run out of the parent company, team up with a third-party outsourced payroll (like a PEO), or partner with a global EOR service like Via that handles the payroll entire process.
For companies that have a commitment to establishing and growing a business presence in the US, running payroll internally makes sense. However, this option requires setting up an entity, which can take over six months and requires in-depth knowledge of tax laws. You will also need a large amount of investment capital 1) to set up an internal HR team and 2) register with a number of government institutions. This process can take a lot of time and money, which is why people choose EOR services like Via.
Another option is to use a PEO service that handles payroll and hiring, or to use an internal payroll services company. PEO services handle payments, benefits, deductions, and other payroll processes.
However, PEO services and internal processing companies do not take full responsibility for legal compliance. If anything were to go wrong, the parent company is still held liable. This is technically a co-employment model, which means the parent company will still need to set up an entity within the country.
Finally, you can hire employees using a global EOR service like Via. EOR services handle global payroll, benefits, and compliant onboarding. An EOR service already has an established entity in the US, so that you don’t have to worry about establishing one to pay employees.
Many companies want to hire employees in the US, but are unsure of how to navigate the complex labor and tax laws that are set forth in the country. Via makes hiring US talent and building your global team seamless. Our easy-to-use platform helps you manage the local HR processes for benefits, payroll, background checks, and more. We have a local team of lawyers and on-the ground experts that understand compliance as you expand abroad.
As your employer-of-record/entity in the US, Via assumes responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
With Via’s transparent pricing, you can pay full-time employees or contractors in the US with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.