Yes. Hiring even one employee who works in the United States can create U.S. payroll, tax, registration, insurance, and employment-law obligations.
Last reviewed: October 2026
But it does not mean every company has exactly the same requirements.
The answer depends on several factors: who is employing the person, where the employee actually performs the work, whether the company already has a U.S. entity, what the employee does, and whether an international tax or Social Security agreement applies.
For an international company, the first U.S. employee is therefore more than an HR decision. It can change the company’s U.S. compliance footprint.
Start here.
| Your situation | What you should review |
|---|---|
| Foreign company, no U.S. entity, first U.S. employee | Federal and state payroll registrations, business registration, employment taxes, workers’ compensation, corporate tax nexus, possible permanent establishment, and whether direct employment or an EOR makes sense |
| Existing U.S. subsidiary hiring in its current state | Payroll setup, withholding, unemployment insurance, workers’ compensation, wage-and-hour rules, new-hire reporting, and benefits |
| Existing U.S. subsidiary hiring a remote employee in another state | Additional state payroll registrations, unemployment insurance, workers’ compensation, state/local employment laws, foreign qualification, and tax nexus |
| U.S.-based salesperson or business-development employee | All normal payroll requirements plus a closer review of corporate tax nexus and, for a foreign employer, U.S. trade or business / permanent establishment exposure |
| “Contractor” performing an employee-like role | Worker-classification review before assuming payroll can be avoided |
| Employee hired through an Employer of Record (EOR) | EOR contract, payroll and employment administration, plus a separate review of the foreign company’s tax and business activities in the U.S. |
| Employee transferred temporarily from another country | Payroll plus potential income-tax treaty and Social Security Totalization Agreement analysis |
The important point is that “one employee” is not a compliance exemption.
Potentially, yes.
U.S. federal tax rules expressly address individuals working in the United States for foreign employers. A foreign company does not automatically need to incorporate a U.S. subsidiary solely because it wants to employ one person in the United States.
That does not, however, mean the foreign company can simply add the employee to its home-country payroll and continue as before.
The IRS states that individuals employed within the United States by a foreign employer are generally subject to U.S. Social Security and Medicare withholding, subject to specific exceptions such as applicable Totalization Agreements. Wages paid by foreign employers for services performed in the United States can also be subject to U.S. federal income-tax withholding and reporting.
The foreign employer may therefore need to establish a U.S. payroll infrastructure itself.
Depending on the state, it may also need to register as an employer, register with state tax and unemployment agencies, obtain workers’ compensation coverage where required, and potentially register or “foreign qualify” the business itself.
The SBA specifically notes that having employees in a state can be one factor requiring state registration and that businesses operating in multiple states may need foreign qualification.
So the better question is usually not:
“Can we hire without a U.S. entity?”
It is:
“What obligations will direct employment create, and is that structure still the best option for us?”
Quite a few.
A business with an employee needs an Employer Identification Number, or EIN, for U.S. federal employment-tax purposes.
The IRS uses the EIN to identify the employer on payroll filings and other tax documents. Foreign employers with no principal place of business in the United States can still apply for an EIN, although they generally cannot use the standard online EIN application and instead use the procedures available to international applicants.
If EINs are new to you, see our guide to EIN and ITIN for foreign founders.
Employers generally withhold federal income tax from employee wages based on the employee’s Form W-4 and IRS withholding rules.
The amount varies by employee. It is not a flat employer tax.
Employers also have reporting and deposit obligations tied to those withheld amounts.
For 2026, the standard federal payroll-tax rates are:
| Tax | Employee | Employer | 2026 limit |
|---|---|---|---|
| Social Security | 6.2% | 6.2% | Applies up to $184,500 of taxable wages |
| Medicare | 1.45% | 1.45% | No wage cap |
| Additional Medicare Tax | 0.9% withholding above the applicable payroll threshold | No employer match | Employer withholding begins after wages paid to an employee exceed $200,000 during the calendar year |
These amounts are generally reported through Form 941.
For an international employee transferred to the U.S., however, do not assume FICA automatically applies. A Social Security Totalization Agreement may assign coverage to the employee’s home-country system instead. More on that below.
Federal unemployment tax, or FUTA, is paid by the employer rather than withheld from the employee.
Employers may also owe state unemployment insurance contributions. Each state operates its own unemployment system and sets its own rules, rates, taxable wage bases, and registration procedures.
An employer may also have ongoing requirements including Form 941, Form 940 when applicable, annual Forms W-2 and W-3, federal tax deposits, state withholding returns, state unemployment filings, and other state or local payroll reporting.
The IRS notes that employers generally must report wages and employment taxes and provide a Form W-2 to employees annually.
This is why U.S. payroll setup should usually happen before the first payroll date, not after the employee has already started working.
Very much.
One of the biggest mistakes international employers make is treating “U.S. payroll” as one national system.
It is not.
Federal payroll rules sit on top of state and sometimes local requirements.
The employee’s physical work location is usually the starting point for determining which state rules need to be reviewed. Residence can also matter, and certain states have reciprocity agreements, special sourcing rules, or rules affecting remote workers.
So you should not simply use:
the state where the company was incorporated
or
the state where the company has an office
and assume that is the only relevant jurisdiction.
The California employee can create California employer obligations even if your company has no California office. You may need to consider California payroll registration, withholding, unemployment insurance, workers’ compensation, wage-and-hour law, leave rules, business registration, and tax nexus. By contrast, another state may impose a materially different set of obligations.
Workers’ compensation is a good example.
California requires employers to carry workers’ compensation insurance even if they have only one employee. Texas, by contrast, does not require workers’ compensation coverage for most private employers, although employers that opt out have other requirements and exposures.
That is why the correct question is not simply:
“Do U.S. employers need workers’ compensation?”
It is:
“What does the state where this employee works require?”
Payroll is only one part of onboarding.
Employers must verify the identity and employment authorization of new employees using Form I-9.
The employee generally completes Section 1 no later than their first day of employment. The employer generally completes Section 2 within three business days after the employee’s first day of employment.
This applies to U.S. citizens as well as other employees authorized to work in the United States.
If the candidate requires immigration sponsorship, that becomes a separate immigration analysis. Our U.S. business visa series provides additional context around visas for founders, transferred employees, and skilled talent.
Employers also generally need to report newly hired employees to the appropriate state new-hire reporting system.
The exact reporting procedure and required information are state-specific; many states require reporting within 20 days of hire.
Payroll does not determine whether the employment arrangement itself is compliant.
Employers also need to consider applicable rules covering areas such as minimum wage, overtime, wage statements, pay frequency, final pay, meal and rest periods, paid sick leave, family leave, expense reimbursement, and required employee notices.
For employees covered by the federal Fair Labor Standards Act, the federal minimum wage remains $7.25 per hour and non-exempt employees are generally entitled to overtime at 1.5 times their regular rate after 40 hours in a workweek. States can impose higher or additional standards.
For example, New York’s sick-leave rules cover private-sector employees, with the amount and whether the leave is paid depending on employer size and, for very small employers, income.
The broader lesson: one employee can be enough for certain state or local employment rules to matter.
It can. This is where payroll and corporate tax begin to overlap.
For a foreign company employing someone directly in the United States, the employee’s activities may contribute to the foreign company being considered engaged in a U.S. trade or business.
The IRS specifically states that employees working in the United States on behalf of a foreign corporation can create a U.S. trade or business and that the determination depends on the specific facts.
That does not mean:
one employee = automatic federal corporate income tax
But it does mean the question should be reviewed rather than ignored.
The company may also create state corporate income/franchise tax nexus, sales tax nexus, or state business-registration obligations depending on where and how the employee operates. The SBA notes that physical presence such as employees can be relevant to state sales-tax obligations.
For this reason, your first U.S. employee should usually prompt a corporate tax and sales tax nexus review alongside payroll setup.
Possibly, but not automatically.
For a company based in a country that has an income-tax treaty with the United States, the treaty may limit when the U.S. can tax the foreign company’s business profits.
Many treaties use the concept of a permanent establishment, or PE.
It is important not to treat “U.S. trade or business” and “permanent establishment” as interchangeable concepts. The IRS notes that the domestic-law U.S. trade or business standard can be broader than the treaty permanent-establishment standard.
What the employee actually does matters.
Suppose a European company hires one U.S.-based salesperson.
The person attends conferences, develops leads, negotiates with prospects, and manages customer relationships. That does not allow us to declare, based on the title “salesperson” alone, that the company has a permanent establishment.
But the analysis becomes much more important if that person has authority to conclude contracts, habitually exercises authority that binds the foreign company, or otherwise carries on meaningful business activities on its behalf.
The IRS identifies the activities and contractual authority of U.S.-based personnel as relevant when analyzing both U.S. trade or business and dependent-agent permanent establishment exposure. Treaty wording varies by country, so the applicable treaty has to be reviewed.
A remote administrative or back-office employee presents a different fact pattern.
Payroll and state-employer obligations can still exist. But you should not assume the corporate income-tax analysis will be identical to that of a senior salesperson with authority to negotiate or sign customer contracts.
Job title is less important than what the person actually does.
This is often more straightforward operationally.
If the U.S. subsidiary is the intended employer, it can generally handle the employee through its U.S. payroll.
But you still need to ask where the employee works.
Being incorporated in Delaware and having an office in New York does not make the Florida employee a purely Delaware or New York payroll issue.
The employee’s Florida work location can create a new state compliance footprint for the company. That may mean reviewing state unemployment registration, employment law, workers’ compensation, business registration, and state tax nexus. This becomes increasingly important as companies adopt remote work.
Every time an employee moves to another state, the company should have a process for reviewing whether the move creates new registrations or compliance requirements before payroll simply changes the employee’s home address.
Only if they are actually an independent contractor under the applicable rules.
A contract saying “independent contractor” does not settle the issue. For federal employment-tax purposes, the IRS looks at the real relationship between the worker and the business, including behavioral control, financial control, and the type of relationship between the parties.
Worker classification is particularly important in 2026 because the federal regulatory landscape is changing.
The Department of Labor proposed a new independent-contractor framework in February 2026 and stated that it is no longer applying its 2024 rule in investigations while the new rulemaking proceeds. As of October 5, 2026, the proposed replacement has not become a final rule. The IRS also applies its own separate employment-tax classification rules, while individual states may use still different standards.
So a company should not use contractor status simply as a way to avoid U.S. payroll.
If the person works indefinitely for the company, is closely directed by it, performs an integrated role, and otherwise functions like an employee, calling them a contractor may create rather than remove risk.
For a related employment distinction, see our guide to part-time vs. full-time U.S. employees.
An Employer of Record can be a useful option, particularly when an international company wants to make an initial hire before building its own U.S. employment infrastructure.
Under an EOR arrangement, the EOR generally becomes the formal employer for payroll and employment-administration purposes while the worker performs services for the client company. That can simplify areas such as payroll processing, local employment documentation, tax withholding, and certain employee administration.
But an EOR should not be treated as a universal tax shield.
An EOR can help with employment administration.
It does not automatically make the foreign company’s U.S. business activity disappear.
If the employee is developing the U.S. market, negotiating significant contracts, carrying on core operations, or otherwise acting on behalf of the foreign business, corporate tax, permanent-establishment, state nexus, and business-registration questions may still need to be analyzed based on the actual activity.
That follows from the IRS’s fact-specific approach to U.S. trade or business and permanent-establishment analysis.
So the question should not be:
“EOR or compliance?”
It should be:
“Which compliance responsibilities does the EOR handle, and which risks still belong to us?”
This deserves a separate analysis.
A foreign company may transfer an existing employee to work temporarily in the United States instead of hiring someone locally. Payroll obligations can still arise, but international Social Security rules may change the answer.
The United States has Social Security Totalization Agreements with a number of countries designed to prevent the same employment from being subject to Social Security contributions in both countries.
Under many agreements, an employee temporarily transferred by an employer in an agreement country may remain covered by the home-country Social Security system for a specified period instead of paying U.S. Social Security and Medicare taxes.
A Certificate of Coverage is generally used to document the exemption. The specific agreement must be checked because the rules and permitted assignment periods are not identical for every country.
This is fundamentally different from hiring a person who already lives and works in the United States.
Not necessarily under the federal Affordable Care Act employer mandate.
The ACA’s employer shared-responsibility provisions generally apply to an Applicable Large Employer, or ALE: an employer averaging at least 50 full-time employees, including full-time equivalents, during the prior calendar year.
Related companies can be aggregated for purposes of determining ALE status, while work performed entirely outside the United States is generally excluded from the employee count for this particular test.
So you should not simply conclude:
“We only have one U.S. employee, therefore the group has no ACA issue.”
You should check the applicable aggregation rules.
Even where health insurance is not federally mandated, benefits remain an important recruiting and compensation consideration in the U.S. market. State or local requirements can also apply independently of the federal ACA employer mandate.
Our U.S. benefits coordination resources cover the benefits side in more detail.
| Scenario | Payroll? | State review? | Corporate tax / nexus review? | Key issue |
|---|---|---|---|---|
| Foreign parent directly hires U.S. employee | Usually yes | Yes | Yes | Foreign company itself may become the U.S. employer |
| Existing U.S. subsidiary hires locally | Yes | Yes | Usually already part of U.S. footprint, but state nexus still matters | Get payroll and state setup right before first paycheck |
| Remote employee works in a new state | Yes | Yes, especially | Yes | Employee location can create a new state footprint |
| First hire is a salesperson | Yes | Yes | Especially important | Activities and contractual authority can affect USTB / PE analysis |
| Worker is labeled a contractor | Maybe not, if classification is genuinely correct | Yes | Possibly | The label does not control classification |
| Worker hired through EOR | EOR generally administers it | Yes | Still review | EOR does not automatically eliminate nexus or PE |
| Existing foreign employee temporarily transferred to U.S. | Often, but treaty/Totalization rules may modify | Yes | Yes | Immigration, treaty, payroll, and Social Security coordination |
A useful first-hire review looks something like this:
| Step | Question |
|---|---|
| 1. Identify the employer | Will the employee work for the foreign parent, a U.S. subsidiary, or an EOR? |
| 2. Confirm the work location | In which state — and city, if relevant — will the employee actually perform their work? |
| 3. Review entity registration | Does the employer need to register or foreign qualify in that state? |
| 4. Obtain the necessary IDs | Is the employer’s EIN in place? What state payroll and unemployment accounts are required? |
| 5. Set up payroll | Are federal, state, and any local withholding and employer taxes configured correctly? |
| 6. Verify employment eligibility | Is Form I-9 being completed on time, and is separate immigration support required? |
| 7. Review workers’ compensation | What does the employee’s work state require? |
| 8. Check wage and leave rules | What minimum wage, overtime, sick leave, pay-frequency, notice, or other employment rules apply? |
| 9. Report the new hire | What does the state new-hire registry require and by when? |
| 10. Review corporate tax exposure | Could the employee create U.S. trade or business, permanent-establishment, state income-tax, or franchise-tax exposure? |
| 11. Review sales tax nexus | Does the physical presence change the company’s sales-tax obligations? |
| 12. Review benefits | What is legally required, what does the group already provide, and what will the candidate reasonably expect? |
| 13. Think beyond employee #1 | Is this a one-off hire, or the beginning of a larger U.S. team? |
That final question can change the best structure.
An EOR may be practical for a short-term first hire. Direct foreign employment may be workable in another situation. A U.S. subsidiary may make more sense when the company is building a real operating presence and expects additional hiring.
There is no universal headcount at which one structure automatically becomes the right answer.
Hiring one employee in the United States can absolutely create U.S. tax and payroll obligations.
At a minimum, the company should determine who the legal employer will be, where the person will work, how payroll will be registered and run, what state employment requirements apply, and whether the employee’s activities change the company’s broader U.S. tax footprint.
The biggest mistake is treating the first U.S. hire as an isolated HR task.
For an international business, it is often the point where payroll, tax, entity structure, employment compliance, and expansion strategy begin to overlap.
Planning those pieces together before the employee starts is much easier than trying to unwind an incorrect setup later.
Orbiss helps international companies establish and manage their U.S. operations, including U.S. payroll, corporate tax, accounting, and benefits coordination. If your first U.S. hire is approaching, we can help you map the requirements before the first paycheck is due.
Yes, in some circumstances. U.S. tax rules contemplate employees working in the United States for foreign employers. However, the foreign company may itself need U.S. federal and state payroll registrations, an EIN, state business registration, workers’ compensation coverage, and other compliance infrastructure. The employee’s activities can also create corporate tax or nexus issues.
It can. An employee’s physical presence and activities may create state tax nexus, and employees acting on behalf of a foreign corporation can contribute to the company being considered engaged in a U.S. trade or business. The answer depends on the state and the employee’s activities.
Not automatically. Permanent-establishment analysis depends on the applicable tax treaty and the facts. A person’s authority to conclude binding contracts on behalf of the foreign enterprise can be particularly relevant under dependent-agent provisions found in many U.S. treaties.
Generally, yes. The IRS states that a business classified as an employer needs an EIN for federal employment-tax purposes. Foreign businesses without a U.S. principal place of business can obtain an EIN using the IRS procedures available to international applicants.
It depends on the state. California requires workers’ compensation coverage even for an employer with one employee, while Texas does not require it for most private employers.
Only if the actual working relationship supports independent-contractor classification under the applicable federal and state rules. A contract or job title alone does not determine status.
It should not be assumed to. An EOR can handle employment and payroll responsibilities, but corporate tax analysis depends on the activities actually carried out in the United States. A company’s U.S. trade or business and permanent-establishment exposure therefore requires a separate review.
Start with the state where the employee physically performs the work, then review the employee’s residence and any applicable state sourcing, reciprocity, or remote-work rules. The state where the company is incorporated is not necessarily the only relevant state.
Not necessarily. The federal ACA employer mandate generally applies to employers with at least 50 full-time employees, including full-time equivalents, based on the prior year’s workforce. Related employers may have to be aggregated, so the entire ownership structure should be considered.
Common federal requirements include Form W-4 for withholding, Form I-9 for employment-eligibility verification, Form 941 for federal payroll-tax reporting in most cases, Form 940 where FUTA filing requirements apply, and Form W-2 at year-end. State forms and registrations vary.
This article is for general informational purposes only and does not constitute legal, tax, immigration, or employment advice. Requirements vary by company, employee, jurisdiction, and applicable treaty. Companies should obtain advice appropriate to their specific circumstances.