At Bradford Jacobs, our Professional Employer Organization (PEO) platforms provide reliable solutions for companies wishing to establish their presence in the US economy. From the first steps of setting up operations to ensuring compliance with the local payroll laws and regulations, we offer dedicated USA Payroll solutions that can be personalized to your requirements.
We aim make business expansion easy. We navigate the administration of the US payroll system for you - and as part of our service, we make the returns and associated payments for income tax at federal and state level directly from our payroll system to the relevant authorities.
Our teams step in to work alongside your company and you enjoy the benefits. We supply customized payroll solutions to meet the specific requirements of complying with the US’s regulations. At Bradford Jacobs, we realize each business faces specific issues in dealing with these troublesome issues – and we have the answer for every question.
When expanding into a new country, you may encounter some challenges regarding payroll, but allow us to take the reins and answer any of your questions and concerns with our trusty guide on payroll for the US.
What US Payroll Options are available for Companies?
- Remote payroll - This option allows businesses to operate under a single payroll system, by adding employees in the US to your parent company’s payroll. However, these employees must operate under different regulations, which is likely to cause problems.
- Internal payroll - You may operate payroll for your subsidiary, especially if you are committed to growing your company’s presence in the US. However, this does require hiring dedicated HR staff who understand US employment and compliance laws.
- US payroll processing company - If you are considering outsourcing, then working with a US payroll company will help in processing your payroll – but not when it comes to compliance.
- US payroll outsourcing - However, there is another option available that solves both concerns – by working with Bradford Jacobs. We can handle payroll and compliance for all your employees in the US. We take the administrative stress off your shoulders so you can focus on what you do best.
US Payroll Services
Establishing payroll in the United States of America demands a total understanding of the employment and taxation laws. Further complexities are added by taxes being applied at federal, state, county, city, and municipal levels. Foreign businesses can thrive in the world’s largest economy, but the authorities strictly apply fines and sanctions for non-compliance with the legal aspects of payroll, taxation, and employment.
It is best to ‘play safe’. Outsourcing payroll services to Bradford Jacobs Employer of Record (EOR) services safeguards your expansion. We make certain you always comply with this intricate web of laws when onboarding new employees. Our specialists remove the burden of US payroll, tax, and employment laws while you focus on building your business in the new territory.
As part of our service, we file returns and associated payments for wage tax and social security contributions directly from our payroll system to the relevant authorities. Staying up to date with federal, state, and municipal laws is a crucial element of our payroll services. Our role includes:
- Ensuring the employee has correct documentation, allowing them to work in the US
- Completing Form W-4 for remitting employees’ tax payments to the authorities
- Registering the employee with the relevant state’s Labor Agency
- Ensuring the employer has worker’s compensation insurance in place, which can vary between states
- Advising on the best payroll method so the employee can receive their wages. This involves paying employees, paying payroll tax to the Internal Revenue Service (IRS) and the state’s tax agency, if applicable, and filing tax returns
- Negotiating any tax exemptions for skilled expats (where applicable)
- Reconciling national, state, and local taxes to assess for refunds or extra payments
- Calculating employees’ monthly salary and sending their pay slips
- Researching for any available tax incentives
- Submitting employees’ and employers’ wage tax returns
- Creating and submitting your company’s annual accounts and year-end statements
- Creating payment schedules for salaries and any insurance contributions (if applicable)
- Ensuring accurate personal income tax returns are filed for you and your employees, where required
What is required to set up Payroll in the US?
As the strongest economy in the world, the United States of America is a prime target for international expansion. But companies planning to move in must comply with basic legal requirements attached to running payroll, paying particular attention to income tax, minimum wages, overtime pay and employee benefits.
All companies must establish a legal entity in order to process payroll. An employer must have an Employer Identification Number (EIN) before remitting forms and withheld taxes to the Internal Revenue Service (IRS) and can apply for an EIN online using the IRS website. Employers must also register to pay federal taxes electronically through the Electronic Federal Tax Payment System.
- Employers must be registered to withhold income tax from their US-based employees and remit payments to the Internal Revenue Service after completing form W-4, which legally entitles them to deduct contributions.
- Employers must also withhold state income tax if they, or any of their employees, are located in states where this applies.
- Additional federal and state taxes are paid to comply with the Federal Unemployment Act.
- Payroll must be set up to deal with overtime pay. Employees who are covered by the Fair Labor Standards Act (FLSA) are entitled to one-and-a-half times their regular pay rate if they work more than 40 hours a week.
- Payroll platforms must also comply with the Federal Insurance Contributions Act (FICA) and withhold taxes for social security and Medicare, matching the payments that are taken from employees’ salaries.
- Employers must keep payroll documentation for three years, including employment contract, social security number and their I-9 employment eligibility verification form, timecards, and payment records. Some states require other data to be kept and in California and New York, for example, documentation must be retained for six years.
What Entitlement, Termination Terms apply to US Payroll?
The US Department of Labor (DoL) oversees close to 200 federal regulations that cover the workplace for around 150 million employees. The Fair Labor Standards Act (FLSA) prescribes standards for wages and overtime pay, which affect most private and public employment.
Workers’ compensation programs vary between states and sectors and employers and employees have to deal with their relevant state’s rules. The US Department of Labor’s Office of Workers’ Compensation Programs do not have a role in state workers’ compensation schemes.
Compensation, guarantees and benefits that are covered include:
National Minimum Wage: The federal minimum wage is US$7.25 per hour, but this varies across the states. For example, in California the minimum hourly rate is US$14 per hour for companies with more than 26 employees and US$13 per hour for employers with fewer.
In 2021, Idaho applied the national minimum, but Hawaii had a rate of US$10.10, Illinois US$11 and Washington DC US$15.20 per hour.
Where employees are subject to both state and federal regulations the higher rate applies. Georgia has a minimum of US$5.15 per hour, but under the Fair Labor Standards Act employers must pay the federal minimum of US$7.25.
Sick Leave and Vacation Pay: According to the Fair Labor Standards Act (FLSA), employers are not statutorily required to give employees payment for vacations, sick leave, federal or other holidays. These benefits are matters of agreement between employer and employee. However, many states have their own laws on sick leave.
Overtime: This is paid at one-and-a-half times above the usual hourly rate if the employee works more than 40 hours a week on average over a 168-hour period.
Maternity and Family Leave: There is no statutory paid maternity leave provision in the US. However, the Family and Medical Leave Act (FMLA) ensures that mothers can take up to 12 weeks of unpaid job-protected leave for pregnancy and child rearing, but only 60% of workers are eligible.
The Act also stipulates unpaid job-protected leave for the serious illness of the employee, spouse, or a child.
Termination and Severance Entitlement: Unless included in a collective bargaining agreement, terms of notice, termination and entitlements or a period of ‘garden leave’ are contractually specified. However, employees working ‘at-will’ are not generally entitled to a period of notice.
Eligible employees have the right to continued healthcare coverage for a period and to receive government unemployment benefit. They may be entitled to severance pay according to state laws, if it can be proved the employer led the employee to believe they would receive severance.
‘At-will’ employment can be terminated by either party without notice, but can be unlawful:
- If there was an implied contract
- If it violates public policy, federal, state, or local laws
- If it is based on discrimination or retaliation
Employers that come under the Worker Adjustment and Retraining Notification Act (WARN) face termination regulations in the case of closure and laying off more than 50 workers at a single site. In this case workers must be given 60 days’ notice.
Working Hours and Breaks: The usual 40-hour week comprises five eight-hour days with at least eight hours rest in between. Hours exceeding 40 in a 168-hour period are considered overtime.
Flexibility in working hours depends on individual contracts. Lunch or coffee breaks are not mandatory and depend on employer / employee agreements and usually do not exceed 20 minutes and are paid as working time.
If agreed, breaks are considered part of working hours when calculating any overtime. Unauthorized breaks are not counted. Some states have their own regulations for breaks or meal periods.
Notice Periods: Outside of plant closures and mass layoffs under the federal Worker Adjustment and Retraining Notification Act (WARN) and state law equivalents, employers in the United States are not required to provide employees with notice of termination.
Public Holidays: There are no national holidays as the United States Congress only has constitutional authority to create holidays for federal institutions, although most ‘Federal Holidays’ are also observed as state holidays.
There are 10 federal holidays recognized by the US Government, when all non-essential government employees are off work and most government offices close, including post offices. For details of ‘State Holidays’ and how they impact on private and public employers follow the link https://www.employmentlawhandbook.com/leave-laws/federal-state-holidays/
Holidays that are followed in all states include:
- New Year’s Day - January 1
- Martin Luther King Jr. Birthday - Third Monday in January
- Washington’s Birthday - Third Monday in February (President’s Day)
- Memorial Day - Last Monday in May
- Juneteenth Day - June 19 (National Independence Day)
- Independence Day - July 4
- Labor Day - First Monday in September
- Columbus Day - Second Monday in October
- Veterans’ Day - November 11
- Thanksgiving Day - Fourth Thursday in November
- Christmas Day - December 25
Every four years Inauguration Day is celebrated on January 20 and is counted as a federal holiday.
Healthcare and Social Security: Social Security is run by the federal government, using taxes paid into a trust fund to provide benefits to people who are eligible and provides support for such as retirement and disability. The fund is built upon taxes withheld during employment payments.
The employer withholds tax from the employee to comply with the Federal Insurance Contributions Act (FICA). This tax is used to fund Social Security and Medicare.
Both employer and employees contribute 6.20% for Social Security and 1.45% for Medicare.
What Taxation Rules Exist for US Payroll?
US citizens are taxed on their worldwide income, regardless of where they live. They also must pay federal taxes, regardless of which state they live in and whether that state also imposes individual income taxes. The tax year begins on January 1st and ends on December 31st (with some exceptions), and returns are filed by April 15th of the following year.
Form 941 is filed quarterly by employers, detailing wages and taxes paid during the quarters beginning in January, April, July, and October. Form 940 is filed annually for unemployment taxes, but states may have their own regulations regarding monthly, quarterly, and annual filings.
Both at state and federal level employers withhold tax and any social security contributions and remit them to the revenue authorities. Taxable income usually includes salaries, bonuses, commissions, fringe benefits and any financial holiday benefits.
Listed below are taxes and conditions on paying that both employers and employees in the US must be aware of:
- Federal Income Tax: There are seven brackets in 2021, starting at 10% up to US$9,950 for single individuals, US$19,900 for married couples filing jointly and US$14,200 for ‘heads of household’ where joint returns are not being filed.
Other rates are set at 12%, 22%, 24%, 32%, 35% and 37%. The top rates in the three categories are US$523,601 or more for singles, above US$628,301 for jointly filing married people and above US$523,601 for heads of families.
However, the Biden Administration in May 2021 proposed changes to the tax burden for high earners. The new top bracket of 39.6% would apply to joint-filing married couples with a taxable income exceeding US$509,300 and individuals with more than US$452,000 in taxable income.
- Social Insurance: Social security contributions are covered by the Federal Income Contributions Act (FICA). FICA taxes include Old Age, Survivors and Disability benefits (OASDI), known as the ‘social security tax’, and the Hospital Insurance (HI), known as Medicare.
In 2021, employers and employees each pay 6.20% to OASDI and 1.45% towards Medicare for a total of 7.65%. Employers and employees contribute 6.2% only on the first US$142,000 of earnings.
Employees pay an extra 0.9% towards Medicare if single-filers earn more than US$200,000 and joint-filers US$250,000
Rules on other taxes
- Corporate Income Tax (CIT): The US’s already complex corporate tax system added another level of complication with proposals from the Biden Administration to increase the rate from 21% (which had been cut from 35%) back up to 28% by the end of 2021. The rate for tax years beginning between January 1, 2021, and January 1, 2022, would under the proposals be 21% plus 7% of taxable income accruing in 2022.
Additionally, companies pay state corporate taxes at up to 11%, but can deduct state corporate tax against their federal tax liability.
- Withholding Tax (WHT): Foreign companies and individuals are subject to 30% withholding tax on US-sourced income from dividends and interest, depending on tax treaties between the US and their home country.
- Consumption Tax: Sales tax on goods and services apply in most US states, where some municipalities and counties also apply their own sales taxes. Rates vary between around 10% in states such as Tennessee and Arkansas down to around 5% in Wisconsin and Maine, with Hawaii under 5%.
- Customs and Excise Taxes: The Customs and Border Protection (CBP) collects taxes on imported goods on behalf of other US agencies at rates established by the Internal Revenue Service (IRS).
- Other Taxes: These include Inheritance, Estate and Gift Taxes. Property Taxes on commercial and residential properties are applied at state, not federal, level.
Stress Free Global Expansion
Bradford Jacobs’ Employer of Record (EOR) solutions smooth your route into the United States of America and every new territory targeted for worldwide expansion. Registration procedures, tax laws and dealing with relevant authorities are potentially hazardous barriers to your expansion, risking severe fines for non-compliance or late returns. Bradford Jacobs is on call every step of the way to ensure your company clears all the hurdles to establishing a successful presence in the US.
Contact us today for more information.