How to Use An Employer of Record in
The United States

Hiring in the United States means navigating the Fair Labor Standards Act (FLSA), multi-layered state and federal payroll tax withholding under the Internal Revenue Code, and at-will employment doctrine that coexists with complex federal discrimination and leave protections. An Employer of Record in the United States becomes the legal employer of your staff, managing all federal and state compliance, payroll tax filings with the IRS and state revenue departments, and statutory benefits, while you retain full operational control without opening a US entity. The EOR removes the risk of employee misclassification under FLSA, shields you from multi-state payroll tax registration burdens, and handles Department of Labor reporting requirements that vary by headcount and location.

What Is an Employer of Record in The United States?

An Employer of Record in The United States is a third-party organisation that becomes the legal employer of your staff under US federal and state employment law, handling all statutory obligations, payroll, and compliance while you retain full operational control over day-to-day work, performance management, and business outcomes. The EOR holds the employment contract, withholds federal and state income tax, remits payroll taxes to the Internal Revenue Service and state agencies, and ensures compliance with federal labour standards and state-specific mandates.

Under US employment law, the relationship is governed primarily by the Fair Labor Standards Act for wage and hour rules, Title VII of the Civil Rights Act for anti-discrimination protections, the Family and Medical Leave Act (FMLA) for unpaid leave entitlements, and the Employee Retirement Income Security Act (ERISA) for benefit plan administration. Employment in the United States operates under the at-will doctrine in most states, meaning either party can terminate without cause unless a contract or collective bargaining agreement states otherwise. Employers must classify workers correctly as exempt or non-exempt under FLSA, provide statutory benefits like workers' compensation insurance and unemployment insurance contributions, and comply with state-mandated paid sick leave and short-term disability insurance where applicable.

You retain control over the employee's daily tasks, performance reviews, project assignments, and strategic direction. The EOR owns the legal employment relationship, executes the written employment contract under your company name as client, administers payroll in US dollars through a compliant US payroll system, files quarterly and annual tax returns with federal and state authorities, maintains workers' compensation coverage, and manages termination procedures including final pay timing and continuation of health benefits under COBRA.

How Does an Employer of Record Work in The United States?

When you engage an Employer of Record to hire in the United States, the EOR takes on all legal employer responsibilities while you direct the employee's work and retain operational control. The process follows a structured path that ensures compliance with federal laws enforced by the Department of Labor, Internal Revenue Service, and Equal Employment Opportunity Commission, as well as state-specific requirements administered by state labor departments and revenue agencies. Here is how it works step by step.

Step 1: Define Role and Employment Terms

You determine the job title, duties, reporting structure, compensation level, and whether the role is exempt or non-exempt under the Fair Labor Standards Act. If the position is covered by a collective bargaining agreement, the EOR applies the terms negotiated by the relevant union. You confirm the work location because state law governs wage payment timing, mandatory benefits like paid sick leave, and income tax withholding rates. The EOR reviews your proposed terms against federal minimum wage of $7.25 per hour and applicable state or city minimums, which in 2026 range from $15.00 per hour in California and New York to $12.00 in states like Florida and Texas.

Step 2: EOR Compliance Check

The EOR verifies that the salary meets or exceeds the federal minimum wage of $7.25 per hour and the relevant state minimum, confirms FLSA classification as exempt or non-exempt based on duties and salary thresholds (the 2026 federal exempt salary threshold is $1,128 per week or $58,656 annually for most white-collar exemptions), and checks working time limits under state law. In states like California, daily overtime after eight hours and double time after twelve hours apply. The EOR ensures workers' compensation insurance is in place and that you are registered for state unemployment insurance contributions, which range from 0.1 percent to over 10 percent of wages depending on state and experience rating.

Step 3: Employment Contract

The EOR prepares a written employment agreement in English, the only language required by federal law unless a state mandates translation for non-English speakers. The contract must state at-will employment status unless otherwise agreed, include FLSA classification as exempt or non-exempt, specify the base salary or hourly wage and pay frequency (weekly, biweekly, or semi-monthly depending on state law), detail any commission or bonus structure, list benefits including health insurance and 401(k) retirement plan eligibility, and incorporate mandatory clauses on equal employment opportunity, anti-harassment policies, and arbitration if applicable. For fixed-term contracts, which are rare in the United States, the agreement must specify the end date and grounds for early termination. The standard probationary period is 90 days, though this is not a statutory requirement and does not alter at-will status unless the contract states otherwise.

Step 4: Government Registrations

The EOR registers your company as a client employer with the Internal Revenue Service to obtain a Federal Employer Identification Number if you do not have one, and registers with state revenue departments and labor agencies in every state where employees work. The EOR files Form I-9 Employment Eligibility Verification within three business days of the employee's start date and submits new hire reporting to the state directory of new hires within 20 days, as mandated by the Personal Responsibility and Work Opportunity Reconciliation Act. Failure to file I-9 or new hire reports on time triggers penalties ranging from $250 to over $2,000 per employee for repeated violations. The EOR also secures state unemployment insurance account numbers and workers' compensation coverage, which must be active before the employee begins work to avoid stop-work orders and fines.

Step 5: Payroll in Local Currency

The EOR runs payroll in US dollars on the frequency required by state law, which ranges from weekly in states like Connecticut to semi-monthly in California and monthly for exempt employees in some jurisdictions. The EOR calculates federal income tax withholding using IRS Publication 15-T and the employee's Form W-4, withholds state and local income taxes where applicable, and deducts the employee's share of Social Security (6.2 percent on wages up to $176,100 in 2026) and Medicare (1.45 percent on all wages, plus 0.9 percent Additional Medicare Tax on wages over $200,000 for single filers). The EOR remits employer payroll taxes including the matching 6.2 percent Social Security and 1.45 percent Medicare contributions, Federal Unemployment Tax Act (FUTA) tax of 0.6 percent on the first $7,000 of wages after state unemployment tax credits, and state unemployment insurance contributions. All federal payroll taxes are remitted electronically to the IRS through the Electronic Federal Tax Payment System, typically on a semi-weekly or monthly schedule depending on the employer's tax liability.

Step 6: Ongoing Compliance

The EOR files quarterly payroll tax returns including IRS Form 941 for federal income and FMLA taxes, state quarterly wage and withholding reports, and state unemployment insurance returns. The EOR submits annual W-2 wage statements to the Social Security Administration by January 31 and provides copies to employees, files annual federal unemployment tax returns on Form 940, and maintains records of hours worked, wages paid, and tax filings for at least three years as required by the Fair Labor Standards Act. The EOR monitors changes to federal and state employment law including minimum wage increases, overtime threshold adjustments, and new paid leave mandates in states like Colorado, Washington, and New York. The EOR administers statutory benefits such as FMLA unpaid leave for qualifying employees at employers with 50 or more workers, continuation of health coverage under COBRA after termination, and state-mandated paid sick leave and family leave programs in jurisdictions like California, New Jersey, and Massachusetts.

Step 7: Termination

Termination in the United States generally does not require just cause due to the at-will employment doctrine, but the EOR ensures compliance with federal anti-discrimination laws under Title VII, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and state wrongful termination protections. Notice periods are not mandated by federal law, though the Worker Adjustment and Retraining Notification Act requires 60 days' written notice for mass layoffs or plant closures affecting 50 or more employees at a single site. Collective bargaining agreements often impose notice requirements ranging from one to four weeks depending on tenure and role. Severance pay is not required by federal or most state laws unless promised in a contract or policy, though employers often offer one to two weeks of pay per year of service as part of a separation agreement with a release of claims. The EOR processes final pay according to state law, which in California and Colorado requires payment on the last day of work for involuntary terminations, within 72 hours in states like Massachusetts, and by the next regular payday in others. The EOR issues the final W-2, provides COBRA election notices for health insurance continuation, and files state unemployment claims as required.

Employment Laws and Compliance an Employer of Record Handles in The United States

When you hire through an Employer of Record in The United States, the EOR takes on full compliance responsibility across federal and state employment law, so you do not need to build an in-country HR function, retain US employment counsel, or maintain expertise in the Internal Revenue Code and Department of Labor regulations.

• Employment Contracts and At-Will Status: The EOR drafts written employment agreements that confirm at-will employment status as default under common law in all states except Montana, include mandatory FLSA classification as exempt or non-exempt, and incorporate federal equal employment opportunity and anti-harassment clauses required by the Equal Employment Opportunity Commission. Failure to document employment terms correctly exposes you to wrongful termination claims and wage and hour class actions.
• Payroll Tax and Income Tax Withholding: The EOR withholds federal income tax under Internal Revenue Code sections 3401 to 3406 using the employee's Form W-4, calculates Social Security tax at 6.2 percent on wages up to $176,100 and Medicare tax at 1.45 percent on all wages (plus 0.9 percent Additional Medicare Tax over $200,000), and remits employer matching contributions totaling 7.65 percent plus 0.6 percent FUTA tax under the Federal Unemployment Tax Act. The EOR also withholds and remits state and local income taxes in jurisdictions with income tax, files quarterly Form 941 with the IRS and state equivalents, and issues annual W-2 statements. Penalties for late or incorrect payroll tax filings range from 2 percent to 15 percent of unpaid tax, with personal liability for willful failure to remit trust fund taxes.
• Social Security and Unemployment Insurance: The EOR remits employer Social Security contributions at 6.2 percent and Medicare at 1.45 percent on all wages to the Social Security Administration through the IRS, and pays state unemployment insurance taxes ranging from 0.1 percent to over 10 percent depending on state and experience rating. The EOR registers for Federal Unemployment Tax and pays 0.6 percent on the first $7,000 of wages after state UI credit. Non-compliance results in denial of unemployment claims, stop-work orders, and accumulated tax penalties.
• Statutory Leave Entitlements: The EOR administers unpaid leave under the Family and Medical Leave Act for eligible employees (12 weeks for qualifying medical and family reasons at employers with 50 or more workers), tracks state-mandated paid sick leave in jurisdictions like California (minimum 40 hours accrual per year), Arizona (40 hours), and New York City (40 hours), and manages state paid family and medical leave programs including California Paid Family Leave funded by employee payroll deductions and Washington Paid Family and Medical Leave funded by combined employer and employee contributions. The EOR maintains records of leave requests, certifications, and usage as required by 29 CFR Part 825.
• Termination and Severance: The EOR processes terminations in compliance with at-will employment doctrine and federal anti-discrimination protections under Title VII, the Age Discrimination in Employment Act, and the Americans with Disabilities Act, ensures final pay is issued according to state law deadlines ranging from same day in California to next regular payday in other states, and provides COBRA notices for health insurance continuation. Severance pay is voluntary unless contractually promised, but the EOR can administer separation agreements with general releases of claims under the Older Workers Benefit Protection Act requirements.
• Working Time and Overtime: The EOR tracks hours worked for non-exempt employees and calculates overtime pay at 1.5 times the regular rate for hours over 40 per week under the Fair Labor Standards Act section 207, and applies state-specific rules like California's daily overtime after eight hours and double time after 12 hours. The EOR maintains time records for three years as required by 29 CFR Part 516. Misclassification as exempt or failure to pay overtime triggers back wage liability, liquidated damages equal to unpaid wages, and Department of Labor penalties.
• Health and Safety Obligations: The EOR ensures compliance with the Occupational Safety and Health Act administered by the Occupational Safety and Health Administration, which requires a workplace free from recognized hazards, maintenance of OSHA 300 injury and illness logs for employers with more than 10 employees, and reporting of severe injuries within 24 hours. The EOR maintains workers' compensation insurance as mandated by state law, which covers medical costs and lost wages for work-related injuries and is the exclusive remedy preventing most employee lawsuits. Failure to carry workers' compensation insurance results in stop-work orders, fines up to $5,000 per employee, and personal injury liability.
• Data Protection and Employee Privacy: The EOR handles employee personal data in compliance with state privacy laws including the California Consumer Privacy Act as amended by the California Privacy Rights Act, which grants employees rights to access, delete, and opt out of sale of personal information, and sector-specific federal laws like the Health Insurance Portability and Accountability Act for health information. The EOR secures Social Security numbers, maintains I-9 forms separately from personnel files, and implements data breach notification procedures required by state law. Unauthorized disclosure of employee data triggers regulatory penalties and civil liability.
• Collective Bargaining Agreements: Where employees are covered by a union contract, the EOR applies the terms negotiated under the National Labor Relations Act, including wages, hours, grievance procedures, and seniority rules. The EOR remits union dues and fees as required by the agreement, participates in grievance and arbitration processes, and coordinates with union representatives on terminations and discipline. Failure to honor a collective bargaining agreement results in unfair labor practice charges with the National Labor Relations Board and potential arbitration awards.
• I-9 Employment Eligibility Verification: The EOR completes Form I-9 for every new hire within three business days of the start date as mandated by the Immigration Reform and Control Act, examines original identity and work authorization documents from List A or combinations of List B and List C, and retains I-9 forms for three years after hire or one year after termination, whichever is later. The EOR ensures E-Verify electronic verification is completed within three business days in states requiring E-Verify participation like Arizona, Georgia, and South Carolina. Failure to complete or retain I-9 forms triggers fines ranging from $272 to $2,701 per form for paperwork violations and $670 to $27,018 per unauthorized worker for knowingly hiring violations, with potential criminal penalties for pattern or practice violations.

How Much Does It Cost to Use an Employer of Record in The United States?

Using an Employer of Record in The United States involves two cost components: the EOR service fee and statutory employer costs fixed by federal and state law. Statutory costs include payroll taxes, social insurance contributions, unemployment insurance, and workers' compensation premiums, all calculated as percentages of gross salary and remitted to the Internal Revenue Service, Social Security Administration, and state agencies. Playroll's EOR service fee starts from $399 per employee per month and is billed separately from payroll. The total employer cost depends on the employee's salary, work location, and applicable state unemployment insurance and workers' compensation rates.

Let's look at an example that includes a base salary and the EOR service fee.

The EOR service fee covers preparation and maintenance of compliant employment contracts under the Fair Labor Standards Act and state law, monthly payroll processing with federal and state income tax withholding, quarterly and annual tax filings with the IRS and state revenue departments, administration of statutory benefits including FMLA leave tracking and COBRA notices, workers' compensation insurance procurement and claims management, new hire reporting and I-9 employment eligibility verification, and ongoing monitoring of federal and state employment law changes. The EOR also provides dedicated support for employee inquiries, termination processing with final pay compliance, and audit defense if challenged by the Department of Labor or state agencies.

Employer of Record vs Setting Up an Entity in The United States

The decision between using an Employer of Record and establishing your own entity in The United States depends on your hiring timeline, budget, and long-term commitment to the US market. Foreign companies typically incorporate a US subsidiary as a C Corporation or Limited Liability Company in a state like Delaware, Wyoming, or the state of business operations. The process requires appointing a registered agent, filing Articles of Incorporation or Organization with the Secretary of State, obtaining a Federal Employer Identification Number from the IRS, registering for state and local taxes, securing workers' compensation insurance, and opening a US bank account. Entity formation and initial compliance setup typically takes 6 to 12 weeks and costs between $15,000 and $40,000 including legal fees, registered agent fees, state filing fees, and initial tax registrations.

For companies hiring fewer than 10 employees in The United States, an Employer of Record is almost always the faster and more cost-effective route.

Playroll also supports your long-term growth through its Global Entity Setup product, which handles entity incorporation and local payroll in 120+ countries, so you can transition from EOR to your own compliant entity in The United States when the time is right, without switching providers or rebuilding your HR processes.

How Long Does It Take to Hire Someone in The United States Through an Employer of Record?

The typical timeline to onboard an employee in The United States through an Employer of Record is 10 to 15 business days from the moment you provide final employment terms to the employee's first payroll cycle.

• Stage 1: Contract preparation and signing (2 to 3 business days): The EOR drafts a compliant employment agreement confirming at-will status, FLSA classification, salary or hourly wage, benefits, and mandatory clauses under federal and state law, sends it to the employee for electronic signature, and returns a fully executed copy to you. Timing depends on how quickly the employee reviews and signs, and whether any negotiation of terms is required.
• Stage 2: Government registrations (1 to 3 business days): The EOR completes Form I-9 Employment Eligibility Verification by inspecting original documents within three business days of the start date as mandated by the Immigration Reform and Control Act, submits new hire reporting to the state directory of new hires within 20 days, and registers the employee with state unemployment insurance and workers' compensation systems. Missing the I-9 deadline triggers penalties starting at $272 per violation, and failure to secure workers' compensation coverage before the start date can result in stop-work orders and fines up to $5,000 per employee.
• Stage 3: Payroll configuration and first cycle (3 to 5 business days): The EOR configures the employee in its US payroll system with federal and state income tax withholding based on Form W-4, sets up direct deposit or pay card distribution, and enrolls the employee in benefit plans including health insurance during the eligibility waiting period and 401(k) retirement plan according to plan terms. The first payslip arrives on the next scheduled pay date after onboarding, which depends on your chosen pay frequency: weekly, biweekly, or semi-monthly as permitted by state wage payment laws.
• Stage 4: US-specific requirements (1 to 2 business days, runs in parallel): If the employee works in a state requiring E-Verify electronic employment eligibility verification such as Arizona, Georgia, Mississippi, or South Carolina, the EOR completes E-Verify within three business days of the hire date. Some states like California and New York require additional new hire filings for child support enforcement and paid family leave enrollment, which the EOR submits concurrently with federal I-9 processing. These requirements do not typically extend the overall timeline as they run in parallel with contract signing and payroll setup.

The timeline can extend if the employee delays returning signed documents or providing I-9 identity and work authorization documents, if your company requires internal approval for the final contract or salary adjustment, or if the employee is subject to a background check or professional license verification that you request before the start date. Hiring in states with unique registration processes like New York's workers' compensation board or California's Employment Development Department can add one to two business days for initial employer setup if the EOR is not already registered in that state on your behalf.

This timeline compares favorably to setting up your own US entity, which takes 6 to 12 weeks for incorporation, Federal Employer Identification Number issuance, state tax registrations, workers' compensation procurement, and payroll system configuration before your first employee can legally start work.

How Playroll's Employer of Record Process Works in The United States

Playroll's Employer of Record service in The United States is built for companies that want compliant hiring without the burden of entity setup or ongoing payroll administration.

1. You define the role and candidate

You provide the job title, salary or hourly wage, work location, start date, and confirm whether the role is exempt or non-exempt under the Fair Labor Standards Act. Playroll's team reviews your terms to ensure compliance with federal minimum wage, state wage payment laws, and overtime requirements.

2. Playroll prepares a compliant contract

Playroll drafts a written employment agreement in English that confirms at-will employment status, includes FLSA classification and overtime eligibility, specifies pay frequency and benefits, and incorporates mandatory equal employment opportunity and anti-harassment clauses required by federal law. The contract is executed electronically and returned to you within two to three business days.

3. Employee onboarded and payroll goes live

Playroll completes Form I-9 employment eligibility verification, submits new hire reporting to state agencies, enrolls the employee in workers' compensation insurance and benefit plans, and configures payroll with federal and state income tax withholding based on Form W-4. The entire onboarding process takes 10 to 15 business days from contract signature to first payroll cycle, with notifications sent to the Internal Revenue Service, state revenue departments, and unemployment insurance agencies as required.

4. Playroll manages ongoing compliance and scales with you

Playroll runs monthly or semi-monthly payroll depending on state law, files quarterly IRS Form 941 and state unemployment insurance returns, administers statutory leave under the Family and Medical Leave Act and state-mandated paid sick leave programs, and monitors changes to federal and state employment law. As your US team grows, Playroll can support your transition to a local entity through its global entity setup service, handling incorporation, tax registrations, and compliant payroll without requiring you to change providers or rebuild your HR infrastructure.