Hiring Your First U.S. Employee

Overview

Payroll registration, state tax nexus, benefits, and offer-letter mechanics

Hiring a U.S. employee creates obligations that go far beyond paying a salary. The company becomes subject to federal, state, and sometimes local employment, payroll, tax, insurance, and reporting requirements.

The rules are usually determined by where the employee works, not merely where the company is incorporated.

Choose the Employment Structure

A foreign company generally has three initial options:

A U.S. subsidiary provides greater control and may be appropriate for long-term hiring.

An employer of record can act as the legal employer while the foreign company directs day-to-day work. This may be useful during market testing, although fees can be significant and the arrangement does not eliminate all tax or permanent-establishment concerns.

Independent-contractor status should not be selected merely for convenience. U.S. authorities assess the actual relationship, including control, independence, economic dependence, duration, and integration into the business.

Misclassification can result in back wages, taxes, penalties, benefits claims, and employment-law exposure.

• Hire through a U.S. subsidiary
• Use an employer of record
• Engage an independent contractor

Register as an Employer

Before the employee begins work, the company may need:

A company incorporated in Delaware but hiring an employee in New York may need to register to do business in New York and complete New York payroll and employment registrations.

• Federal Employer Identification Number
• State payroll-tax account
• State unemployment-insurance account
• Workers' compensation coverage
• Payroll provider
• New-hire reporting
• Local tax registrations
• Required workplace notices

State Tax Nexus

Hiring an employee can create tax nexus in the employee's state.

Possible consequences include:

Remote hiring therefore requires state-by-state review. Allowing an employee to move to a different state can create new obligations.

Companies should implement a policy requiring approval before employees permanently change their work location.

• Corporate income-tax filing
• Franchise-tax filing
• Payroll withholding
• Unemployment insurance
• Sales-tax nexus
• Local business registration
• Foreign qualification

Offer Letter

A U.S. offer letter commonly addresses:

The offer letter should avoid unintentionally promising employment for a fixed term unless that is intended.

In most U.S. jurisdictions, employees are hired on an at-will basis, subject to applicable law. At-will employment does not permit unlawful termination or override contractual obligations.

• Job title
• Reporting relationship
• Start date
• Work location
• Base salary
• Pay frequency
• Bonus or commission eligibility
• Equity eligibility
• Benefits
• At-will employment
• Contingencies
• Confidentiality obligations
• Background checks
• Required agreements

Compensation

The company should determine whether the employee is exempt or nonexempt under wage-and-hour law.

Nonexempt employees are generally entitled to minimum wage, timekeeping protections, and overtime where applicable.

A salary and managerial title do not automatically make an employee exempt. Duties and compensation thresholds matter.

For sales positions, the company should document:

Ambiguous commission arrangements frequently lead to disputes.

• Commission formula
• Crediting rules
• Payment timing
• Treatment of cancellations
• Split commissions
• Territory
• Quota
• Effect of termination
• Applicable state requirements

Equity Compensation

Equity can help align early employees with company growth, but grants should not be promised informally.

An equity offer should clarify:

The board should approve grants, and the company should maintain accurate capitalization records.

International founders should also confirm that the U.S. entity is authorized to issue the promised equity. A foreign parent and U.S. subsidiary may require different grant structures.

• Type of award
• Number of shares or options
• Approximate ownership, if disclosed
• Vesting schedule
• Exercise price
• Board approval requirement
• Governing plan
• Expiration and termination rules

Benefits

Benefits can influence recruiting competitiveness.

Common benefits include:

State and local laws may mandate sick leave, family leave, disability coverage, or other benefits.

The company should distinguish between discretionary policies and legally required benefits.

• Health insurance
• Dental and vision coverage
• Retirement plan
• Paid time off
• Sick leave
• Parental leave
• Life and disability insurance
• Remote-work stipend
• Professional-development budget

Confidentiality and Intellectual Property

The employee should sign appropriate confidentiality and invention-assignment documentation.

The agreement should address:

Restrictive covenants vary significantly by state. A clause that may be enforceable in one state may be prohibited or restricted in another.

• Confidential information
• Prior inventions
• Work-product ownership
• Invention assignment
• Return of company property
• Data security
• Non-solicitation, where enforceable
• Noncompetition, where lawful
• Continuing obligations after termination

Employee Handbook and Policies

Even a small company should consider basic written policies addressing:

Some states require specific policies or notices.

• Equal employment opportunity
• Anti-harassment
• Complaint procedures
• Timekeeping
• Leave
• Remote work
• Confidentiality
• Information security
• Expense reimbursement
• Acceptable use
• Conflicts of interest

First-Hire Checklist

Before the start date:

The first U.S. hire establishes precedents. A disciplined process reduces legal exposure and creates an employment infrastructure that can scale.

• Confirm entity or employer-of-record structure.
• Register for payroll and unemployment taxes.
• Obtain workers' compensation coverage.
• Determine exempt or nonexempt classification.
• Finalize the offer letter.
• Finalize confidentiality and invention-assignment documents.
• Establish payroll.
• Prepare benefits enrollment.
• Complete employment-authorization verification.
• Provide required notices.
• Approve any equity award.
• Document the employee's authorized work location.