This guide has important information for businesses looking to hire employees or contractors in the US. The United States is the third largest country by area as well as population. It’s also the world’s biggest economy, with real GDP growing 2.2% in 2025. Hiring good talent in the US is not easy. The unemployment rate remains near historic lows. The US is the biggest outsourcer for business processes, data entry, digital marketing and other services.

Category	Details
Minimum Wage	$7.25/hour (federal)
Overtime Wage	1.5x regular rate for hours over 40/week
Overtime Salary Threshold	$684/week ($35,568/year) for EAP exemptions
Meal Breaks	No federal mandate
Rest Breaks	No federal mandate
Working Hours	8 hours/day, 40 hours/week
Salary Payment Cycle	Bi-monthly
Payroll Taxes	Social Security (6.2% each), Medicare (1.45% each)
SS Wage Base (2026)	$184,500
Paid Vacation	No federal mandate
Night Shift Pay	110% of regular pay between 6 PM and 6 AM
Federal Holidays	11 per year (no private-sector mandate)
No Work Days	Saturday, Sunday

Hiring in The US

Pro Tip

Hiring in the US without a local entity? See our Employer of Record guide for the USA for a complete breakdown of EOR costs, providers, and compliance.

A business needs a local entity, usually a subsidiary, in the US to hire locally. It can take several weeks and a considerable amount of money to set up a subsidiary in the US. You’ll need to register your business name and incorporate your preferred type of entity with a US state. You will need to apply for a Federal Tax ID Number or Employer Identification Number (EIN).

It’s a nine-digit number the Internal Revenue Service (IRS) uses to keep track of your organization’s tax obligations. In some ways, it’s similar to a Social Security number for individuals. You need to file Form SS-4, Application for Employer Identification Number (EIN) to the IRS to get your EIN. You will also need to get a sales tax permit in states where you will do business in the US. Opening a company bank account in the US can be quite challenging. Most banks require a resident American to be the signing authority for opening a bank account. Hiring and paying employees or contractors in the US is a complex process. You need to comply with social security, Medicare and other employer obligations. United States has one of the strongest enforcement systems for corporate governance. You will need a good lawyer and CPA to help you with compliance. There are legal differences between employees and contractors in the US. Incorrect classification of a contractor as an employee or vice versa can land you into legal troubles.

Minimum Wage in US

The federal minimum wage in the US is $7.25 per hour, unchanged since 2009. Each state has its own minimum wage law that can be higher than the federal minimum wage. Over 23 states increased their minimum wage rates for 2026, with Washington D.C. leading at $17.95/hour.

You must pay the higher of the two rates (federal or state) to your employees. While minimum wage law sets the floor, in most cases, you will be paying a much higher salary to your employees. Due to the low unemployment rate and strong demand for talent, actual wages top $20 per hour in most white-collar jobs. In the technology industry, a competitive salary is in the range of $50 per hour in most cities.

Working Hours in US

Standard working hours in the US are 8 hours per day or 40 hours per week. The standard workweek is Monday through Friday but can be changed depending on business need.

The Fair Labor Standards Act (FLSA) defines which roles are eligible for overtime pay in the US. In general, most managerial and executive roles are exempt from overtime payment. Most creative and professional positions are also exempt.

Overtime pay for non-exempt roles is 150% of the base hourly pay. The salary threshold for executive, administrative, and professional (EAP) overtime exemptions is $684/week ($35,568/year). All contractors or part-time employees are generally entitled to overtime pay.

Starting in 2026, a new overtime pay tax deduction allows workers to deduct the "half" portion of time-and-a-half pay, capped at $12,500/year ($25,000 for joint filers), phasing out above $150,000 MAGI.

Payroll and Taxes in the US

Employers typically follow a bi-monthly payment schedule, with salaries paid every two weeks.

Salary must be paid in cash, by check, or by direct deposit to the employee’s account at a bank or other financial institution.

Some aspects of payroll processing are regulated by the Internal Revenue Service (IRS) and the Department of Labor (DOL). You must comply with these laws:

Fair Labor Standards Act (FLSA)- Federal Insurance Contributions Act (FICA)- Federal Unemployment Tax Act (FUTA) In addition, you also have to abide by state payroll processing laws. Each state has its own rules governing minimum wage, payday schedules and record keeping. Payroll compliance in the US can become cumbersome if you have employees in more than one state.

If you have 1-2 employees in one state, you can process payroll manually. You will still need to keep records of things like hours worked, wages paid and worker classifications. But as you add more employees and contractors, you’ll need to use an automated solution for payroll processing.

Before you start processing your payroll, you will need the following documents from your employees:

W-4 Employee’s Withholding Certificate- W-9 Employee’s Withholding Certificate – used for contractors or freelancers. You will need this to file 1099-NEC at the end of the year- I-9 Employment Eligibility Verification- Medical insurance and retirement plan forms

Classifying employees correctly as employee or contractor is a major issue with US payroll processing. An error can lead to fines from the IRS. If you control only the output or result, then the worker is likely a contractor. If you also control how the work is to be done, then the worker must be classified as an employee.

You can withhold income tax, Social Security tax and Medicare tax only for employees, not independent contractors or freelancers. For employees, you will need to file form W-2.

Employers are responsible for calculating and withholding money for federal, state and local taxes from every workers’ paychecks. It’s determined by the Forms W-4 submitted by your workers and tax rates. In addition, you need to pay federal unemployment tax (FUTA). You will also match your employees’ contribution towards the Social Security and Medicare taxes.

If your employees opt to contribute towards 401K or other retirement plans, you will need to withhold their contribution and deposit in their retirement accounts. If you offer health and other insurance, you will have to deduct employee contribution towards those plans and pay to the insurance provider.

Sometimes, you may have to deduct towards court ordered deductions such as such as child support and alimony.

As you can see, setting up an entity, hiring employees and managing payroll in the US is a complex and costly affair. You’re better off going with an Employer of Record service provider unless you plan to hire a large number of employees.

Individual Income Tax

In the US, domestic income is subject to income tax for both citizens and foreigners. Any foreign income of a resident is also taxed in the US. In addition to the federal income tax, most states and cities also levy income tax on their residents. The US income tax system follows the progressive structure, meaning people who earn more also pay higher taxes. United States offers married couples the option of filing their tax return jointly.

The One Big Beautiful Bill Act (July 2025) made the TCJA individual tax rates permanent. There are seven brackets for 2026: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

2026 Federal Income Tax Brackets -- Single Filers

Rate	Taxable Income
10%	Up to $12,400
12%	$12,401 -- $50,400
22%	$50,401 -- $105,700
24%	$105,701 -- $201,775
32%	$201,776 -- $256,225
35%	$256,226 -- $640,600
37%	Over $640,600

2026 Standard Deductions: Single: $16,100 | Married Filing Jointly: $32,200 | Head of Household: $24,150

Tax	Employee	Employer	Self-Employed
Social Security	6.2%	6.2%	12.4%
Medicare	1.45%	1.45%	2.9%
Total FICA	7.65%	7.65%	15.3%

The Social Security wage base for 2026 is $184,500 (up from $176,100 in 2025). There is no wage base limit on Medicare tax. An additional Medicare tax of 0.9% applies to earned income above $200,000 ($250,000 for joint filers).

Statutory Leave Policies in the US

The federal Family and Medical Leave Act (FMLA) mandates up to 12 weeks of unpaid leave. The FMLA provides up to 12 weeks of unpaid sick, parental and maternity leave for an employee

Employees must have worked for at least one year at the same employer to get this benefit.

There is no national standard for paid or sick leave in the United States.

Nine states and Washington, DC have laws requiring paid family and sick leave.

However, most employers in the services sector offer 2-3 weeks of paid leave. Most employers also offer disability insurance that pays workers during maternity or illness. It’s usually a contributory benefit where both the employer and the employee pay towards the premium.

Most employers give paid time off for some of the popular holidays on the US calendar.

Federal Holidays 2026

There are 11 federal holidays per 5 U.S.C. 6103. Private-sector employers are not required to provide paid time off for these holidays, but most do.

Holiday	2026 Date	Observed
New Year's Day	Thu, Jan 1	Jan 1
Martin Luther King Jr. Day	Mon, Jan 19	Jan 19
Presidents' Day	Mon, Feb 16	Feb 16
Memorial Day	Mon, May 25	May 25
Juneteenth	Fri, Jun 19	Jun 19
Independence Day	Sat, Jul 4	Fri, Jul 3
Labor Day	Mon, Sep 7	Sep 7
Columbus Day	Mon, Oct 12	Oct 12
Veterans Day	Wed, Nov 11	Nov 11
Thanksgiving	Thu, Nov 26	Nov 26
Christmas Day	Fri, Dec 25	Dec 25

When a holiday falls on Saturday, the preceding Friday is observed. When it falls on Sunday, the following Monday is observed.

Employee Benefits

The United States has a comprehensive social security system that offers retirement, disability and medical benefits. Employees are also eligible for unemployment benefits for a limited amount of time of time.

Most employers also provide paid leave, health, dental and vision insurance to their employees. Some also offer group life and disability insurance to their employees. Even though the US has a social security system, most people also contribute towards other retirement plans like 401K and IRA. Contributions to these plans are exempt up to an annual limit. Roth IRA is another retirement plan where contributions are not tax exempt, but future earnings and withdrawals are tax exempt.

Employee Termination

Most employment agreements in the US are “at will” meaning employment can be terminated without any reason by both the employee and the employer. But the standard practice is to give 2 week’s notice or pay to the employee.

But employers cannot terminate an employee based on his or her race, gender, national origin, disability, religion, or age. Employers also have to follow local city, state and federal laws while dismissing an employee. The employer may have to allow the employee to continue with health insurance while unemployed under the COBRA law.

Labor Law Guides for US States

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