United States — Hiring & Payroll Setup

Every employer in the United States — including foreign multinationals hiring their first U.S. employee — must complete Form I-9, Employment Eligibility Verification, for each individual hired for employment after November 6, 1986. This requirement, imposed by the Immigration Reform and Control Act of 1986 (IRCA), codified at 8 U.S.C. § 1324a, applies to all new hires regardless of citizenship or immigration status; U.S. citizens, lawful permanent residents, and foreign nationals with work authorization are all subject to the same verification process.

## The two-section I-9 process

Section 1: Employee attestation. The employee must complete and sign Section 1 of Form I-9 no later than the first day of employment (the first day of work for pay), but not before accepting a job offer. The employee attests to their identity and employment-authorization status by checking one of four boxes: (1) U.S. citizen, (2) noncitizen national of the United States, (3) lawful permanent resident, or (4) alien authorized to work. Employees with temporary work authorization must also provide their Alien Number (A-Number), USCIS Number, Form I-94 admission number, or foreign passport number and country of issuance, plus the date their employment authorization expires.

Section 2: Employer review and verification. The employer (or an authorized representative acting on the employer's behalf) must complete and sign Section 2 within three business days after the employee's first day of employment. If the employee will work for less than three business days, the employer must complete Section 2 no later than the first day of employment. The employer must physically examine original, unexpired documents presented by the employee from the Lists of Acceptable Documents (or use a DHS-authorized alternative remote-examination procedure if enrolled in E-Verify). The employer records the document title, issuing authority, document number, and expiration date (if any) on the form, then signs an attestation under penalty of perjury that the documentation appears genuine and relates to the employee named, and that to the best of the employer's knowledge the employee is authorized to work in the United States.

## Acceptable documents: List A or the List B + List C combination

Employees choose which documents to present; employers may not specify or require particular documents. List A documents (such as a U.S. passport, Permanent Resident Card, or Employment Authorization Document) establish both identity and employment authorization. Employees who present an acceptable List A document need not present anything further. Alternatively, employees may present one List B document (establishing identity only, such as a state driver's license or U.S. military ID card) and one List C document (establishing employment authorization only, such as a Social Security card or U.S. birth certificate). Employers enrolled in E-Verify who accept a List B + List C combination must ensure the List B document includes a photograph.

## Retention, re-verification, and enforcement

Employers must retain the completed Form I-9 for three years after the date of hire, or one year after employment ends, whichever is later. Forms must be made available for inspection by authorized officials from U.S. Immigration and Customs Enforcement (ICE), the Department of Labor, or the Department of Justice Civil Rights Division. Employers do not file Form I-9 with USCIS or ICE; the form remains in the employer's records.

Re-verification is required when an employee's work authorization expires (indicated by an expiration date in Section 1). The employer completes Supplement B, Reverification and Rehire (formerly Section 3), within the same timing rules. Importantly, lawful permanent resident status does not expire when the green card expires; requesting re-verification of an LPR solely because the card has expired is a document-abuse violation under 8 U.S.C. § 1324b and may expose the employer to anti-discrimination penalties from the Department of Justice Immigrant and Employee Rights Section.

IRCA establishes two distinct violations enforceable by ICE through civil monetary penalties (and, in egregious cases, criminal prosecution). First, knowingly hiring or continuing to employ an individual not authorized to work in the United States violates 8 U.S.C. § 1324a(a)(1)(A) and (a)(2); courts apply a constructive-knowledge standard, meaning an employer who deliberately ignores red flags or obvious warning signs is treated the same as one with direct knowledge. Second, failure to properly complete, retain, or make available Form I-9 — including technical or procedural errors such as missing signatures, blank mandatory fields, or untimely completion — is itself a separate violation under 8 U.S.C. § 1324a(b). When ICE conducts an audit and finds technical or procedural failures, it issues a Notice of Technical or Procedural Failures giving the employer 10 business days to correct; uncorrected errors convert to substantive violations subject to per-form penalties. An employer that complies in good faith with the Form I-9 requirements establishes an affirmative defense to a knowing-hire charge if it turns out the employee was in fact unauthorized, unless the government proves the employer had actual or constructive knowledge.

## E-Verify and federal-contractor mandates

E-Verify is a free, web-based system operated jointly by USCIS and the Social Security Administration that electronically verifies information from Form I-9 against government records. Participation is voluntary for most U.S. employers, but mandatory for federal contractors subject to the Federal Acquisition Regulation E-Verify clause (48 C.F.R. Subpart 22.18) and for employers in certain states (Arizona, Mississippi, and others) that have enacted state-law E-Verify mandates. Employers enrolled in E-Verify must create a case for each new hire within three business days of hire and may, as of August 1, 2023, use an optional alternative procedure to remotely examine Form I-9 documents in lieu of in-person physical examination, provided they retain copies of all documents examined and conduct a live video interaction with the employee.

Source: 8 U.S.C. § 1324a, ICE Form I-9 Inspection Overview, USCIS Form I-9, USCIS I-9 Central, USCIS Handbook for Employers M-274, Section 2.0

A foreign company hiring a remote employee in the United States faces the threshold question: does that employee create a permanent establishment (PE) — a taxable business presence — that subjects the foreign parent to U.S. corporate income tax? The answer turns on whether the foreign enterprise is engaged in a trade or business within the United States and whether that trade or business generates income effectively connected with the U.S. operations, under Internal Revenue Code § 864(c) and, if applicable, the treaty framework codified in bilateral U.S. income-tax treaties following the OECD Model Tax Convention Article 5.

## The Code framework: trade or business and effectively connected income

Under IRC § 864(c)(1)(A), a foreign corporation engaged in a trade or business within the United States during the taxable year is subject to U.S. federal income tax on income, gain, or loss that is effectively connected with the conduct of that trade or business. IRC § 864(c)(3) provides that U.S.-source income (other than certain passive income categories subject to withholding tax under IRC § 881) shall be treated as effectively connected with the conduct of a U.S. trade or business. U.S.-source income includes compensation for services performed in the United States, rents or royalties from property located in the United States, and gains from the sale of U.S. real property interests.

The Code does not define "trade or business within the United States" comprehensively. Courts and regulations apply a facts-and-circumstances standard requiring activities that are continuous, regular, and substantial. Performance of personal services in the United States generally constitutes a U.S. trade or business; a foreign corporation that employs individuals working in the United States may therefore be engaged in a U.S. trade or business through those employees' activities, depending on what they do and how much authority they exercise.

The critical nexus for determining whether income from sources outside the United States is also subject to U.S. tax is an office or other fixed place of business in the United States. IRC § 864(c)(4)(B) provides that foreign-source income will be treated as effectively connected with the conduct of a U.S. trade or business if the foreign corporation has "an office or other fixed place of business within the United States to which such income, gain, or loss is attributable" and the income consists of rents, royalties, dividends, interest, or other specified categories. Treasury Regulation § 1.864-7(b)(2) elaborates: a foreign person is not considered to have an office or other fixed place of business merely because the person uses another's office or fixed place of business (whether or not related) if the foreign corporation's activities in that office are relatively sporadic or infrequent, taking into account the overall needs and conduct of the trade or business. Conversely, if the activities are regular, continuous, and essential to the foreign company's core business, and the office or location is demonstrably "at the disposal" of the foreign enterprise for more than a temporary period, a home office of a U.S.-based employee can constitute a fixed place of business of the foreign employer.

## The treaty overlay: Article 5 permanent establishment

If the foreign corporation is a resident of a country with which the United States has an income-tax treaty, the treaty typically provides a narrower definition of permanent establishment than the Code's "trade or business" concept, potentially shielding the foreign company from U.S. tax even when it would otherwise be engaged in a U.S. trade or business under the Code. Most U.S. tax treaties follow the OECD Model and the U.S. Model Income Tax Convention.

Article 5(1) of the U.S. Model Income Tax Convention (2016) and most bilateral treaties defines a permanent establishment as "a fixed place of business through which the business of an enterprise is wholly or partly carried on." The Technical Explanation to the U.S. Model clarifies that three elements must be satisfied: (1) a place of business (any premises, facilities, or installations used for carrying on business), (2) that is fixed (a particular building or physical location used for more than a temporary duration), and (3) through which the enterprise's business is carried on (the enterprise conducts its operations at that location).

Article 5(4) of the U.S. Model excludes from the PE definition certain activities of a preparatory or auxiliary character, such as:

• The use of facilities solely for the purpose of storage, display, or delivery of goods or merchandise belonging to the enterprise;
• The maintenance of a stock of goods or merchandise belonging to the enterprise solely for storage, display, or delivery, or for processing by another enterprise;
• The maintenance of a fixed place of business solely for purchasing goods or merchandise, or collecting information, for the enterprise;
• The maintenance of a fixed place of business solely for any other activity of a preparatory or auxiliary character for the enterprise.

These exclusions are intended to ensure that only activities that form an essential and significant part of the enterprise's overall business create a PE. Back-office functions, purchasing, or market research conducted by a U.S. employee may fall within the preparatory-or-auxiliary safe harbor, while revenue-generating, client-facing, or contract-negotiation activities generally do not.

Article 5(5) addresses the dependent-agent PE: a foreign enterprise is deemed to have a PE in the United States if a person (other than an independent agent described in Article 5(6)) "has and habitually exercises in [the United States] an authority to conclude contracts that are binding on the enterprise" in respect of activities that constitute the enterprise's essential business. The Technical Explanation states that this rule applies when the agent habitually exercises contract-conclusion authority; a U.S.-based sales employee with authority to negotiate and finalize customer contracts, or who habitually plays the principal role leading to the conclusion of contracts that are routinely executed without material modification by the enterprise, can create a dependent-agent PE even if the employee works from a home office and never sets foot in a company-owned facility.

## Home-office PE: the IRS analytical framework

The IRS International Practice Unit on "Creation of a Permanent Establishment (PE) through the Activities of Employees" examines the scenarios in which secondment of employees or remote work by employees creates a U.S. permanent establishment under treaty Article 5(1). The Practice Unit instructs examiners to consider whether the foreign corporation carries on business through a fixed place of business in the United States, with particular attention to:

1. Whether the enterprise has a place at its disposal (the enterprise has a right to use the location, whether or not it is owned or leased; an employee's home office may be considered at the disposal of the foreign enterprise if the enterprise requires the employee to work from home and does not provide or offer an alternative workspace in the United States).

1. Whether the location is fixed (used on a sustained and regular basis, not merely temporary; the duration depends on the nature of the business — a construction site lasting less than twelve months may not create a PE under most treaties' construction-PE threshold, but an employee working full-time from a home office indefinitely is more likely to be viewed as fixed).

1. Whether the business of the enterprise is carried on at that location (the employee performs core business activities — sales, underwriting, software development, investment management — rather than purely preparatory or auxiliary functions).

The Practice Unit notes that activities limited to preparatory or auxiliary functions do not create a PE under the treaty exceptions in Article 5(4), but that this determination is highly fact-specific. It emphasizes that personnel present in the United States who exercise significant management and control over the foreign enterprise's business operations or investment decisions, or who habitually conclude contracts binding on the foreign enterprise, significantly increase PE risk.

## Practical implications and mitigation

A foreign company hiring a U.S. remote worker should evaluate:

1. What does the worker do? Purely administrative, back-office, IT support, or data-entry roles are more likely to be characterized as preparatory or auxiliary. Sales, business development, contract negotiation, underwriting, investment management, and core R&D for a product are more likely to constitute core business activities that create a PE if conducted through a fixed location in the United States.

1. How much authority does the worker have? Contract-signing authority, pricing discretion, or habitual customer-facing negotiation increases dependent-agent PE risk under Article 5(5).

1. How long and how regular? Treasury Regulation § 1.864-7(b)(2) describes a standard of "relatively sporadic or infrequent" use; by contrast, full-time, indefinite remote employment from a home office in the United States is higher risk. Duration thresholds vary by treaty and fact pattern; the analysis is not mechanical but depends on the nature of the business and whether the use is more than temporary.

1. Treaty vs. Code. A treaty resident may invoke treaty benefits and argue that the activities fall within the preparatory-or-auxiliary carve-out under Article 5(4) or that the home office is not sufficiently "at the disposal" of the foreign enterprise. A foreign company from a non-treaty country (or one that does not qualify for treaty benefits under a limitation-on-benefits article) is subject to the broader Code standard under IRC § 864(c).

1. Entity vs. EOR. Many foreign companies mitigate PE risk by engaging a U.S. Employer of Record (EOR) — a third-party service provider that acts as the legal employer of record, maintains its own U.S. entity, handles payroll and tax withholding, and ensures compliance with U.S. labor and employment laws. The EOR shields the foreign parent from direct PE exposure, provided the foreign parent does not direct the day-to-day activities of the worker in a manner that makes the worker a de facto dependent agent of the foreign parent. Alternatively, the foreign company may establish a U.S. subsidiary or branch, accept the PE, and file U.S. corporate tax returns (Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, for a foreign corporation with effectively connected income).

## Conclusion: the threshold question before any cross-border U.S. hire

Before a foreign company hires its first U.S.-based employee, it must determine whether that employee's activities will create a U.S. permanent establishment. If the answer is yes, the foreign parent must register with the IRS, obtain an Employer Identification Number (EIN), file Form 1120-F annually, and pay U.S. corporate income tax on profits attributable to the PE under IRC § 882. If the answer is no — because the employee's activities are sporadic, preparatory or auxiliary, or the company engages an EOR or establishes a subsidiary — the foreign parent avoids direct U.S. corporate tax but must still ensure compliance with U.S. payroll withholding (Form W-2, federal and state income tax, FICA), wage-and-hour laws, and work-authorization requirements (Form I-9 for U.S.-based hires, as described in the companion section of this guide).

Source: IRC § 864, Treas. Reg. § 1.864-7, U.S. Model Income Tax Convention, Technical Explanation (2016), IRS International Practice Unit: Creation of a Permanent Establishment through the Activities of Employees

A U.S. company paying a contractor — whether the contractor performs services inside or outside the United States — faces a foundational tax-classification question: is the contractor a U.S. person subject to Form 1099 reporting and backup withholding (if applicable), or a foreign person subject to nonresident alien (NRA) withholding under Internal Revenue Code § 1441 and related provisions? The answer determines which tax form the contractor submits (Form W-9 for U.S. persons, Form W-8BEN for nonresident alien individuals, or Form W-8BEN-E for foreign entities), what withholding rate applies (none for most U.S. persons, 30% for most foreign persons unless a tax treaty provides a lower rate), and how the payor reports the payment (Form 1099-NEC for U.S. contractors, Form 1042-S for foreign persons).

A foreign company paying a U.S. contractor faces the inverse question: does the U.S. contractor's status as a U.S. person mean the foreign company has no U.S. withholding obligation on payments for services performed outside the United States (because the income is not U.S.-source), or does the location of performance and the nature of the services trigger U.S. reporting or withholding? This section addresses the W-8 vs. W-9 framework from the perspective of the withholding agent (the payor) and explains the core withholding, documentation, and reporting rules under IRC § 1441 and Treasury regulations.

## The classification fork: U.S. person vs. foreign person

The threshold question is whether the payee is a U.S. person or a foreign person for U.S. federal tax purposes. A U.S. person includes:

• A U.S. citizen (regardless of where they reside);
• A resident alien individual (an individual who is not a U.S. citizen but who meets the green card test — holds a lawful permanent resident card — or the substantial presence test under IRC § 7701(b));
• A domestic corporation, partnership, trust, or estate.

A foreign person (nonresident alien individual, foreign corporation, foreign partnership, foreign trust, or foreign estate) is any person who does not meet the U.S. person definition. For individual contractors, the key determination is whether the individual is a resident alien (treated as a U.S. person) or a nonresident alien (foreign person).

The substantial presence test under IRC § 7701(b)(3) and Treasury Regulation § 301.7701(b)-1 treats an alien individual as a U.S. resident for tax purposes if the individual is physically present in the United States on at least 31 days during the current calendar year and 183 days during the three-year period that includes the current year and the two immediately preceding years, counting all days in the current year, one-third of the days in the first preceding year, and one-sixth of the days in the second preceding year. An individual who meets the substantial presence test is a resident alien and must submit Form W-9, even if the individual is not a U.S. citizen and does not hold a green card.

Many foreign nationals working in the United States on long-term work visas (H-1B, L-1, O-1, and others) meet the substantial presence test after their first or second year in the United States and therefore become resident aliens for tax purposes; they submit Form W-9, not Form W-8BEN. By contrast, a contractor who is physically outside the United States for the entire year (or is present in the United States only briefly and does not meet the 31-day / 183-day thresholds) remains a nonresident alien and submits Form W-8BEN.

## Form W-9: U.S. person certification and backup withholding

Form W-9, Request for Taxpayer Identification Number and Certification, is the certification that a U.S. person (U.S. citizen, resident alien, domestic corporation, or other domestic entity) provides to a payor to document the payee's U.S. status and furnish the payee's taxpayer identification number (Social Security number or Employer Identification Number). The payor relies on a valid Form W-9 to:

• Confirm that the payee is a U.S. person and therefore not subject to nonresident alien withholding under IRC § 1441;
• Report payments to the payee on Form 1099-NEC (for nonemployee compensation) if the payor is engaged in a trade or business and pays the U.S. contractor $600 or more during the calendar year;
• Apply backup withholding at 24% (the rate in effect for 2024–2026 under IRC § 3406) if the payee fails to furnish a correct TIN, the IRS notifies the payor that the TIN is incorrect, or the payee is subject to backup withholding for prior underreporting.

A properly completed Form W-9 means the payor does not withhold federal income tax from payments to the contractor (unless the contractor is subject to backup withholding for one of the reasons enumerated in IRC § 3406). The payor files Form 1099-NEC annually with the IRS and furnishes a copy to the contractor by January 31 of the year following payment.

## Form W-8BEN: nonresident alien individual certification and chapter 3 withholding

Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), is the certification that a nonresident alien individual provides to a U.S. payor (or other withholding agent) to document the payee's foreign status and, if applicable, claim a reduced rate of withholding or an exemption under a U.S. income tax treaty. The payor relies on a valid Form W-8BEN to:

• Confirm that the payee is a nonresident alien individual (a foreign person) and therefore subject to chapter 3 withholding (also called NRA withholding) under IRC § 1441 on U.S.-source fixed or determinable annual or periodic (FDAP) income;
• Apply the correct withholding rate: 30% under IRC § 1441(a) for U.S.-source FDAP income, or a reduced treaty rate if the payee claims treaty benefits on Part III of Form W-8BEN and provides the treaty country of residence and the applicable treaty article;
• Report the payment and withholding on Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, filed annually with the IRS and furnished to the payee by March 15 of the year following payment, and on Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, which is the payor's annual return of chapter 3 withholding.

Form W-8BEN is used only for nonresident alien individuals; foreign entities (foreign corporations, foreign partnerships, foreign trusts) use Form W-8BEN-E instead.

A properly completed Form W-8BEN remains valid for the year it is signed and the following three full calendar years, unless a change in circumstances (change of country of residence, change of name, change of address indicating a move to the United States that might trigger the substantial presence test) makes the information on the form incorrect. If a change in circumstances occurs, the payee must submit a new Form W-8BEN within 30 days.

## IRC § 1441: the 30% withholding rule and FDAP income

IRC § 1441(a) requires all persons having the control, receipt, custody, disposal, or payment of any item of fixed or determinable annual or periodic (FDAP) income from sources within the United States paid to a nonresident alien individual or a foreign partnership to deduct and withhold a tax equal to 30% of the gross payment. The term "chapter 3 withholding" (or "NRA withholding") is used by the IRS to refer to withholding required under IRC §§ 1441, 1442, and 1443; Publication 515 (2026), Withholding of Tax on Nonresident Aliens and Foreign Entities, is the IRS's primary guidance document for withholding agents.

FDAP income includes interest (other than certain portfolio interest subject to the exemption under IRC § 871(h)), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other gains, profits, and income. For purposes of nonresident alien contractor payments, FDAP includes compensation for personal services — both employee wages and independent contractor fees — if the services are performed in the United States (U.S.-source income). Compensation for services performed outside the United States is generally foreign-source income and is not subject to chapter 3 withholding under IRC § 1441, unless the payment is effectively connected with the conduct of a U.S. trade or business.

The critical distinction: if a U.S. company pays a nonresident alien contractor for services performed entirely outside the United States, the payment is generally foreign-source income, not subject to chapter 3 withholding, and the U.S. company has no withholding obligation (though it may still request Form W-8BEN to document the contractor's foreign status and the fact that the services were performed outside the United States). By contrast, if a U.S. company pays a nonresident alien contractor for services performed in the United States, the payment is U.S.-source FDAP income subject to 30% withholding under IRC § 1441(a), unless an exemption or reduced rate applies.

## Exceptions to the 30% withholding rate: tax treaties and Form 8233

A nonresident alien individual may claim a reduced rate of withholding or an exemption from withholding on compensation for independent personal services or dependent personal services (wages) if:

1. Treaty benefits. The individual is a resident of a country with which the United States has an income tax treaty, and the treaty contains an article that reduces or eliminates U.S. tax on compensation for personal services. Most U.S. income tax treaties contain a "Dependent Personal Services" or "Income from Employment" article (often Article 14 or 15) and an "Independent Personal Services" article (often Article 14 or 7 in treaties that follow the OECD Model post-2000). These articles typically exempt the individual's compensation from U.S. tax if the individual is present in the United States for fewer than 183 days during the taxable year (or any 12-month period), the compensation is paid by or on behalf of a foreign employer, and the compensation is not borne by a U.S. permanent establishment of the foreign employer.

The IRS publishes a comprehensive set of treaty tables (available at IRS.gov/Individuals/International-Taxpayers/Tax-Treaty-Tables) that show the treaty rates and conditions for personal-service income by country. A nonresident alien individual claiming treaty benefits on compensation for independent personal services (contractor payments) completes Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, and submits the form to the withholding agent before the first payment; the withholding agent reviews the form, accepts or rejects the treaty claim, and forwards a copy of the form (with the withholding agent's acceptance or rejection) to the IRS. If the withholding agent accepts the Form 8233 claim, it withholds at the reduced treaty rate or does not withhold (if the treaty provides a full exemption), and reports the payment on Form 1042-S with the appropriate income code and treaty exemption code.

For dependent personal services (wages paid to a nonresident alien employee), the employee generally uses Form W-4 with special nonresident alien instructions (described in IRS Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens), or submits Form 8233 if claiming a full exemption under a tax treaty. The employer withholds federal income tax at graduated rates (not the flat 30% rate) on wages paid to nonresident alien employees, but applies a special calculation method that does not allow the standard deduction (see Publication 15, Circular E, Employer's Tax Guide, and Publication 515 for the detailed procedure). Wages paid to a nonresident alien that are exempt under a tax treaty are reported on Form 1042-S (not on Form W-2 for the exempt portion, although the employer may also file Form W-2 to report state and local wages and withholding).

1. Services performed outside the United States. If the services are performed entirely outside the United States, the income is foreign-source and not subject to chapter 3 withholding. The payee should submit Form W-8BEN to document foreign status, and the withholding agent should retain documentation (such as an invoice or contract) establishing that the services were performed outside the United States.

## Form 1042-S reporting and the March 15 deadline

A withholding agent that makes a payment of U.S.-source FDAP income to a nonresident alien individual (or other foreign person) subject to chapter 3 withholding — or that makes a payment that would be subject to withholding but for a treaty exemption or reduced rate — must file Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, for each recipient. The withholding agent files Form 1042-S with the IRS and furnishes a copy to the recipient by March 15 of the year following the calendar year of payment. The withholding agent also files Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, by March 15 to report the aggregate amount of payments, withholding, and deposits for the calendar year.

The withholding agent deposits withheld tax to the IRS on a periodic basis (quarterly, monthly, or semiweekly, depending on the amount withheld) using the Electronic Federal Tax Payment System (EFTPS), in the same manner as employment-tax deposits.

## Consequences of misclassification: overwithholding and underwithholding

If a withholding agent collects Form W-9 from a payee who is in fact a nonresident alien (not a resident alien), and the payor files Form 1099-NEC instead of Form 1042-S, the IRS may issue a notice and assess penalties for incorrect information returns. If the payor failed to withhold chapter 3 tax from a payment to a nonresident alien that was subject to withholding, the payor is personally liable for the underwitheld amount under IRC § 1461, plus interest and penalties, even if the foreign payee later satisfies the underlying U.S. tax liability. The withholding agent's liability is independent of the foreign person's liability; the IRS can collect the tax from either party, but will collect only once.

Conversely, if a withholding agent withholds 30% from a payment to a U.S. contractor who should have submitted Form W-9 (because the contractor is a resident alien meeting the substantial presence test, for example), the contractor can file Form 1040-NR (or Form 1040 if treated as a resident alien) and claim a refund of the overwitheld amount, but the error can delay the contractor's receipt of payment and create substantial administrative burden.

## Practical workflow: the documentation step

The best-practice workflow for a company hiring a contractor is:

1. Before the first payment, require the contractor to complete and submit either Form W-9 (if the contractor is a U.S. person) or the appropriate Form W-8 (Form W-8BEN for a nonresident alien individual, Form W-8BEN-E for a foreign entity, Form 8233 if claiming treaty exemption on compensation for independent personal services).

1. Review the documentation. If the contractor submits Form W-9, confirm that the contractor's name and taxpayer identification number are legible and that the contractor signed and dated the form. If the contractor submits Form W-8BEN, confirm that the contractor checked the box certifying nonresident alien status, provided a foreign address (or an explanation if a U.S. address is provided), and completed Part III (treaty benefits) if claiming a reduced rate or exemption.

1. Determine the source of the income. If the contractor is a nonresident alien (Form W-8BEN), determine whether the services will be performed in the United States (U.S.-source, subject to 30% withholding or the treaty rate) or outside the United States (foreign-source, no withholding obligation). Document the determination in the contract or the withholding agent's records.

1. Withhold and report. Withhold tax from each payment at the correct rate (none for Form W-9 recipients, 30% or the treaty rate for Form W-8BEN recipients receiving U.S.-source FDAP income, none for foreign-source payments to Form W-8BEN recipients). File Form 1099-NEC (for Form W-9 recipients) or Form 1042-S (for Form W-8BEN recipients) by the applicable deadline.

1. Retain the documentation. Retain a copy of the Form W-9 or Form W-8BEN (and any supporting documentation, such as Form 8233) for at least three years after the later of (i) the due date of Form 1042 for the year of payment, or (ii) the date Form 1042 was filed.

For foreign companies paying U.S. contractors, the analysis is simpler: if the contractor is a U.S. person (Form W-9) and the services are performed outside the United States, the income is foreign-source and the foreign company has no U.S. withholding or reporting obligation. If the U.S. contractor performs services in the United States for the foreign company, the income is U.S.-source but is paid to a U.S. person; the foreign company may request Form W-9 to document the contractor's U.S. status but generally has no withholding obligation (because chapter 3 withholding applies only to foreign persons, and the contractor is a U.S. person). The foreign company would only have a U.S. reporting obligation if it is engaged in a trade or business in the United States and therefore subject to the Form 1099 reporting rules for U.S. payors; this determination is fact-specific and depends on whether the foreign company has a U.S. permanent establishment or is otherwise engaged in a U.S. trade or business.

## Conclusion: the twin gates of status and source

The W-8BEN vs. W-9 determination is the first gate: is the payee a U.S. person or a foreign person? The second gate is source: is the income from sources within the United States (subject to chapter 3 withholding if the payee is a foreign person) or from sources outside the United States (generally not subject to U.S. withholding)? Cross-border employers must answer both questions before making the first payment to a contractor, retain valid documentation (Form W-9 or the applicable Form W-8), withhold at the correct rate, and file the correct information return (Form 1099-NEC or Form 1042-S). Errors in classification or withholding expose the payor to personal liability for the underwitheld tax, interest, and penalties under IRC § 1461, and can trigger costly remediation and IRS examinations.

Source: IRC § 1441, IRS Publication 515 (2026), Withholding of Tax on Nonresident Aliens and Foreign Entities, IRS Form W-8BEN Instructions, IRS NRA Withholding, IRS Form W-9

Any business—U.S. or foreign—that hires its first employee to work in the United States must register for an Employer Identification Number (EIN) with the Internal Revenue Service (IRS) before running payroll, withholding taxes, or filing U.S. wage reports. The EIN, also known as a Federal Employer Identification Number (FEIN), is a 9-digit tax identification number issued by the IRS to identify employers for federal tax purposes (26 CFR § 301.6109-1).

Who needs an EIN? Every entity or sole proprietor that must file U.S. employment tax returns is required to obtain an EIN, regardless of physical office or permanent establishment. IRS guidance states: "If you pay wages to one or more employees, you must have an EIN." For foreign companies, hiring any employee who will be paid through U.S. payroll (and thus triggering a U.S. employment tax filing) requires an EIN, even if no U.S. entity or office is established (IRS Instructions for Form SS-4).

How to apply: U.S.-based businesses can apply online, by fax, or by mail. Foreign entities (with no legal presence or principal office in the U.S.) must submit Form SS-4 by fax or mail—not online. Foreign applicants are directed on Form SS-4 (line 10) to indicate "Compliance with IRS withholding regulations" or "Hiring U.S. employees" as the reason for application.

2026 update: Effective April 1, 2026, the IRS has announced that processing times for EIN applications submitted by non-resident businesses (e.g., foreign entities applying via fax or international phone) have been reduced from 8–12 weeks to 3–5 business days. U.S.-based (online-eligible) applicants still generally receive EINs instantly online.

The IRS generally issues EINs by fax within four business days or by mail within four to six weeks (see IRS Instructions for Form SS-4, "Where to File").

Required information: The application asks for the legal name of the entity, trade name if used, mailing address, and the "responsible party." The responsible party must be an individual who directly or indirectly owns or controls the entity, as defined in the Form SS-4 instructions: "The responsible party is the person who ultimately owns or controls the entity or who exercises ultimate effective control over the entity."

After obtaining the EIN: Use the EIN for all federal payroll tax filings (Forms 941, 940, W-2, Form 943 if agricultural, etc.) and for federal tax deposits via the Electronic Federal Tax Payment System (EFTPS). Most states require an EIN as part of state payroll tax registration. Failing to obtain an EIN before making wage payments may result in delays or penalties for late or improper filing, as per IRS guidance.

Source: 26 CFR § 301.6109-1, IRS, Apply for an Employer Identification Number (EIN) Online, IRS Instructions for Form SS-4.

After obtaining an Employer Identification Number (EIN), every employer who pays wages to U.S. employees must comply with federal payroll tax withholding and reporting obligations under the Internal Revenue Code and IRS regulations. This involves withholding and depositing federal income tax (FIT), Social Security and Medicare tax (FICA), and paying Federal Unemployment Tax Act (FUTA) contributions. The key steps and authorities are:

1. Withholding and depositing payroll taxes: IRC § 3402(a) requires that employers withhold FIT from wages at the time of payment. Under IRC §§ 3102 and 3111, employers must also withhold the employee share and pay the employer share of FICA taxes. Deposits of withheld and owed payroll taxes must be made through the Electronic Federal Tax Payment System (EFTPS) on either a semiweekly or monthly schedule based on IRS rules (see IRS Publication 15, Chapter 11). Penalties for failure to timely deposit taxes are imposed under IRC § 6656.

2. Quarterly payroll tax returns—Form 941: Most employers must file Form 941, Employer’s Quarterly Federal Tax Return, by the last day of the month following each calendar quarter. Form 941 reports wages paid, FIT and FICA withheld, and payroll tax deposits made. If no wages are paid in a quarter, IRS Publication 15 advises filing a final or zero return, or notifying the IRS if closing the business payroll account.

3. Annual FUTA tax return—Form 940: Employers who paid $1,500 or more in wages in any calendar quarter, or employed at least one employee for any part of 20 weeks in a year, must file Form 940 by January 31 of the following year (IRC § 3306; IRS Publication 15, Chapter 14).

4. EFTPS setup: All federal payroll tax deposits must be made electronically through www.eftps.gov. Registering with EFTPS is a separate step after obtaining the EIN and is required before making the first deposit (IRS Publication 15, Chapter 11).

5. New hire reporting and state overlay: Federal law requires reporting new hires to the designated state authority (42 U.S.C. § 653a); IRS Publication 15 includes reference to this requirement. State payroll registration obligations are separate and not covered in this section.

Foreign and domestic companies with U.S. employees are subject to these federal requirements even if they do not have a physical office or other legal presence in the United States beyond an EIN for payroll. Failure to register, withhold, deposit, and report as required may result in penalties under various statutory sections, including substantial penalties for failure to deposit, report, or pay payroll taxes.

Source: IRC § 3402, IRS Publication 15 (2024), IRS About Form 941, IRS About Form 940, EFTPS

Every employer that hires an employee who will be paid U.S. wages—including a foreign company with only remote U.S.-based employees—is subject to the new hire reporting requirement set out in 42 U.S.C. § 653a. Employers must report information about each newly hired or rehired employee to a designated state agency. The primary statutory purpose is to aid child support enforcement.

Federal baseline: 20-day deadline.

Under 42 U.S.C. § 653a(b)(1)(C), employers must report each new hire "not later than 20 days after the date the employer hires the employee," unless the employer transmits reports magnetically or electronically, in which case submissions must occur twice monthly, "not less than 12 days nor more than 16 days apart." Employers report to the state where the employee works. (If an employer has employees in multiple states, they may choose to send all new hire reports to a single state if they notify the Secretary of Health and Human Services in advance and follow the process under 42 U.S.C. § 653a(b)(1)(B); statutory language on this election is foundational, but state administrative rules may vary.)

The information reported must include the employee's name, address, and Social Security Number, date of hire, the employer’s name, address, and EIN (tax ID). Reporting is mandatory for all employers with U.S. payroll—having an EIN triggers this obligation regardless of the employer’s physical presence or foreign ownership.

State-specific requirements and practical consequences.

Some states have enacted stricter deadlines or require reporting of independent contractors in addition to employees. The federal law is silent on contractors, but for example, California requires reporting certain independent contractors (see the state agency’s own guidance for details—federal statute does not enumerate every state rule). Employers should consult the official reporting portal of the state(s) where the employee performs work to confirm process, forms, and timing: the Office of Child Support Enforcement (HHS) maintains a current set of links and a federal summary at https://ocsp.acf.hhs.gov/.

Penalties for late or failed reporting are assessed at the state level, with the federal statute authorizing states to set civil penalties. However, dollar figures and enforcement practices vary by jurisdiction. Employers should check directly with state agencies for applicable penalty schedules. The federal reporting framework under 42 U.S.C. § 653a was enacted in 1996 and is periodically updated; it remains the governing baseline for all U.S. new hire reporting as of June 2026.

Source: 42 U.S.C. § 653a), HHS New Hire Reporting Overview.

Every employer with U.S. employees—domestic or foreign—must register for payroll tax accounts in each state where an employee performs work. This requirement is distinct from federal EIN and payroll tax setup, and is mandatory for both (1) state income tax withholding and (2) state unemployment insurance (UI) contributions.

1. State income tax withholding registration

Most U.S. states (except Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming) levy a state personal income tax and require employers to register for withholding accounts. Generally, employers must register if they have an employee performing labor in the state or if business activities create a state nexus. Residency of the remote worker alone does not always create a withholding obligation—requirements genuinely vary by state and may depend on in-state work performed, physical presence, or statutory residency. For example, Pennsylvania requires registration via the "Employer Withholding Tax" account (see 72 P.S. § 7316) prior to wage payments; Michigan requires registration if paying Michigan residents for services performed in Michigan or if there is an in-state business nexus. Employers must withhold state income tax at the rates set by the state, remit withholdings, and file returns on the schedule set by the relevant revenue agency. Unable to confirm as of 2026-06-16 whether simply hiring a nonresident remote worker always creates a state registration obligation in every state; practitioners must check individual state guidance.

2. State unemployment insurance (UI) tax registration

All states operate UI programs, but registration triggers and wage bases vary. Under 26 U.S.C. § 3304 and to qualify for full Federal Unemployment Tax Act (FUTA) credit, state unemployment laws must meet minimum federal standards, but most states require employer UI registration upon reaching a low wage threshold (e.g., $1,500 in a calendar quarter or upon hiring an employee for any part of a day in 20 weeks in a year—this mirrors the federal minimum at 26 U.S.C. § 3306(a)), though variations exist. Employers must register with the state workforce or labor department before making wage payments in the state. A state UI account is distinct from the federal EIN and usually obtained online through a designated state portal.

Recent change—Kentucky UI portal transition (2026): Employers registering for Unemployment Insurance accounts in Kentucky should be aware that the state is launching a new employer UI portal in August 2026. Refund request functionality will be unavailable starting July 1, 2026, and the new portal is scheduled to open to employers on August 17, 2026. Employers should consult the Kentucky Office of Unemployment Insurance for updated registration procedures and deadline reminders.

Multi-state, remote, and hybrid scenarios

Employers with staff in more than one state must register and maintain separate employer payroll tax (and UI) accounts for each state where employees work. States may have reciprocal agreements or special provisions for nonresident or telecommuting workers, and guidance is not fully uniform—some states may have differing takes on registration obligations for out-of-state or remote employees. Practitioners should consult the DOL's state-by-state unemployment agency directory and individual state revenue guidance for current rules. Failure to register may trigger back tax liability, penalties, and potential loss of FUTA credit for that state, but mechanics depend on the specific lapse.

Source: U.S. Department of Labor: State Unemployment Insurance Source: Pennsylvania Dept. of Revenue—Employer Withholding Source: IRS Publication 15 (2024) Source: 26 U.S.C. § 3304 Source: Kentucky Office of Unemployment Insurance

In the United States, every employer—including foreign companies hiring their first U.S. employee—must address workers’ compensation insurance as part of payroll onboarding. Workers’ compensation is a mandatory, state-based insurance regime that provides wage replacement and medical benefits for employees injured or made ill on the job. There is no uniform federal law covering private-sector workers: regulation and enforcement is handled by each individual state, the District of Columbia, and U.S. territories, with minor federal overlays for certain specialized classes (federal employees, maritime workers, and railroad workers).

State registration triggers:

• In most U.S. states, employers are required to secure workers’ compensation insurance _once they hire their first employee working in the state_, but some states set a higher employee-count threshold (for example, Florida generally requires coverage at four or more employees for non-construction businesses and from the first employee for construction; Virginia mandates coverage at three or more employees). California is among the strictest, requiring coverage upon hiring any employee (Cal. Lab. Code § 3700).
• Monopolistic states—North Dakota, Ohio, Washington, and Wyoming—require employers to purchase coverage only from the state fund rather than the private market.
• Certain exceptions may apply (for example, some states exclude part-time, agricultural, or family-member employees), but exclusions, thresholds, and required registration timelines vary.

Practical compliance:

• Employers must set up workers’ comp coverage through a state-approved private carrier or, in monopolistic states, through the state fund, and register as part of new-hire onboarding before work starts. This process is distinct from registering for state payroll tax accounts. Failing to maintain coverage typically results in civil penalties, possible stop-work orders, and loss of the right to hire or pay employees until compliant; specific penalties and enforcement practice vary materially by state law.

Federal overlay—limited scope:

• Separate federal statutes govern certain workers, including the Federal Employees’ Compensation Act, the Longshore and Harbor Workers’ Compensation Act, and the Federal Employers’ Liability Act, but these laws do _not_ apply to regular private-sector or most cross-border hires.

Because every state’s requirements, registration procedure, and exemptions differ, reference the U.S. Department of Labor’s map and directory for links to state authorities and primary statutory sources. For all onboarding, verify requirements with the state labor or workers’ comp agency in the employee’s work location.

Source: U.S. Department of Labor, State Workers' Compensation Officials & Laws

Unable to confirm as of 2026-06-16: exact registration triggers or penalty provisions for every state; practitioners should confirm directly with state authorities.

There is no comprehensive federal law in the United States requiring employers to provide employees with a wage statement or paystub each pay period. The federal Fair Labor Standards Act (FLSA) requires only that employers maintain detailed payroll records for covered employees (see 29 C.F.R. § 516.2(a)), including hours worked, rate of pay, total earnings, and itemized deductions. However, the FLSA recordkeeping obligation applies to the employer's internal files—not as a delivery or disclosure rule to employees. There is no federal mandate to issue paystubs.

Instead, wage statement (paystub) requirements are set by state law. Many U.S. states compel employers to furnish itemized wage statements with specific content each pay period, but the exact requirements, delivery methods (written, printed, electronic), and penalties for non-compliance vary widely across states. For example:

• California Labor Code § 226(a) requires employers to provide employees with an itemized wage statement containing nine specific elements, including gross wages, total hours worked (for nonexempt employees), pay period dates, pay rate(s), all deductions, and employer information.
• New York Labor Law § 195(3) mandates a statement with each payment of wages, showing pay period dates, rate of pay, gross and net wages, and deductions.
• Illinois Wage Payment and Collection Act 820 ILCS 115/10 requires that each pay period, employers give employees an itemized statement that includes hours worked, rate of pay, gross wages, and all deductions.

States without explicit paystub statutes may default to FLSA recordkeeping and inspection rights; however, no state generalization is possible without direct source check. Employers must check the wage statement law in each state where an employee works to determine whether and how to provide paystubs, and what information must be shown. Many payroll providers configure statements to meet the most stringent applicable state’s rules.

Practitioner trap: Failure to provide required wage statements can expose employers to statutory damages, civil penalties, or employee claims (as under California Labor Code § 226(e)), but details—including required content—are state-specific. There is no federal penalty for failing to provide a paystub if the FLSA internal recordkeeping requirement is satisfied.

Unable to confirm as of 2026-06-16: the number of states with a statutory paystub delivery requirement or the existence of a mandate on English-language statements at a nationwide level.

Source: 29 C.F.R. § 516.2 Source: California Labor Code § 226(a) Source: New York Labor Law § 195(3) Source: Illinois Wage Payment and Collection Act 820 ILCS 115/10

Unlike many countries, the United States does not have a comprehensive national statute requiring private-sector employers to pay wages at a fixed frequency (e.g., weekly, biweekly, monthly) or within a specified time after the close of a pay period. The federal Fair Labor Standards Act (FLSA), codified at 29 U.S.C. §§ 201–219, principally regulates minimum wage, overtime pay, and recordkeeping but imposes no general rule mandating a particular pay frequency or payday schedule for non-federal employees. The only federal requirement is that wages for non-exempt employees must be paid on the "regular payday" for the pay period in which the work was performed, and that overtime wages must be paid "on the regular payday for the period in which such work was performed" (29 C.F.R. § 778.106). The Department of Labor states that beyond this, pay frequency and timing are governed by state law.

The state law patchwork. Nearly every U.S. state sets its own statutory rules on how frequently employees must be paid (e.g., every week, every two weeks, semi-monthly, or monthly), and the maximum time allowed between the end of a pay period and the payday. For example:

• California requires all wages earned between the 1st and 15th to be paid by the 26th of the month, and wages earned between the 16th and end of a month must be paid by the 10th of the following month (Cal. Lab. Code §§ 204, 210).
• New York specifies different pay frequencies by occupation (NY Labor Law §§ 190, 191); most manual workers must be paid weekly, clerical and other workers at least semi-monthly.
• Texas requires semi-monthly pay as a default but allows more frequent cycles (Texas Labor Code § 61.011).

There is no universal rule—employers must check each state’s statutes where an employee is located or performs work. Multiple jurisdictions maintain official pay frequency charts (e.g., NY Department of Labor, California DLSE), but the requirements, enforcement practices, and penalties for late payment all flow from state law rather than federal.

Best practices: Always establish a written pay schedule stating frequency and regular paydays upon hire. Failing to follow the applicable state’s pay frequency law or delay payment can trigger statutory penalties, waiting time penalties, or even criminal liability in some states.

Source: 29 C.F.R. § 778.106 Source: California Labor Code § 204 Source: NY Labor Law § 191 Source: Texas Labor Code § 61.011 Source: U.S. DOL Guidance Paydays/Frequency

When a business hires its first U.S. employee, it must understand the regulatory triggers for offering health coverage and employee benefits. Two major federal frameworks apply: the Employee Retirement Income Security Act of 1974 (ERISA, 29 U.S.C. § 1001 et seq.) and the Affordable Care Act (ACA; principally 26 U.S.C. § 4980H, 42 U.S.C. § 18001 et seq.).

1. ERISA: Group health plan triggers for any size, even one employee

ERISA governs employer-sponsored health, welfare, and retirement benefit plans for all private-sector employers that offer these benefits—regardless of company size. The law applies even if the plan covers just a single eligible employee (see DOL ERISA Compliance Assistance Guide, Ch. 1). There is no small-business exemption: once you establish (or contract for) a group health or welfare plan, you must:

• Provide a written plan document and summary plan description (SPD) to covered employees (29 U.S.C §§ 1021–1024).
• File Form 5500 annually if the plan has 100+ participants, but smaller plans have documentation and SPD requirements even without a Form 5500 filing.
• Comply with claims, appeals, disclosure, and reporting rules—even for very small plans (29 C.F.R. § 2520.104b-2; DOL Compliance Guide).

However, ERISA does not require any employer to establish or offer a group health plan. If an employer chooses not to offer health coverage, ERISA imposes no obligation—unless a state mini-COBRA or insurance coverage rule applies (these are not preempted for insurers but generally don't require an offer for one-employee plans).

2. ACA: Employer shared responsibility provision ("employer mandate")

The ACA only requires certain employers to offer affordable health insurance: the so-called "employer mandate" (26 U.S.C. § 4980H) applies only to "applicable large employers" (ALEs)—those with an average of 50 or more full-time employees (including full-time equivalents) during the preceding calendar year. Small employers (fewer than 50 FTEs) are not required by the ACA to offer health insurance, though most must report coverage offered if they do provide it (see 26 U.S.C. § 6056, 6055). The details for determining ALE status are in IRS Q&A: Employer Shared Responsibility Provisions; key points:

• A business with only one or a handful of U.S. employees is not subject to the ACA employer mandate penalty for not offering coverage.
• However, small employers may offer coverage voluntarily; if they do, compliance with ERISA applies regardless of size.
• State law may create additional mandates or small-group insurance standards (not preempted by ERISA for insured plans, 29 U.S.C. § 1144(b)(2)(A)).

Employers of any size that offer a group health plan must comply with ERISA’s plan documentation, SPD, COBRA (if 20+ employees), and claims-procedure requirements, even where the ACA mandate does not apply.

Source: 29 U.S.C. § 1002(1), (3); DOL ERISA Compliance Assistance Guide (2023), Ch. 1: Who Is Covered; IRS ACA Employer Shared Responsibility Q&A

Every employer hiring in the United States—including foreign businesses on-boarding their first U.S. employee—faces strict federal requirements to display specific labor law posters (workplace notices) in a manner “conspicuous and accessible” to all employees. The U.S. Department of Labor (DOL) enforces poster obligations under the Fair Labor Standards Act (FLSA), Occupational Safety and Health Act (OSHA), Equal Employment Opportunity (EEO), and additional statutes, but not all posters apply to every employer. Posting may be physical or, for remote/distributed teams, electronic so long as employees have unrestricted access. State and local poster duties are layered above federal; this section covers only the federal baseline.

Core federal poster requirements—coverage prongs:

• FLSA Minimum Wage Poster: All employers covered by the FLSA (which includes nearly all private-sector businesses with at least $500,000 in annual sales or those engaged in interstate commerce) must post the official DOL FLSA Minimum Wage notice (WH-1088). The posting must be “conspicuously placed…where employees may readily see it” (29 C.F.R. § 516.4).

• OSHA Workplace Safety Poster: Every employer under OSHA jurisdiction (most private-sector entities) must display the “Job Safety and Health—It’s the Law” (OSHA 3165) poster. For remote employees, DOL acknowledges electronic posting is permitted if all workers have unrestricted, routine access (see DOL Poster FAQ).

• EEO “Know Your Rights”: Employers covered by Title VII, ADA or GINA (generally those with 15 or more employees) and all federal contractors/subcontractors must post the current EEOC "Know Your Rights: Workplace Discrimination is Illegal" notice. Posting can be electronic for remote teams, with access rules outlined in EEOC guidance.

• FMLA Rights Poster: Covered employers (those with 50 or more employees within a 75-mile radius) must post the DOL's FMLA rights notice, whether or not any employees are currently eligible (29 C.F.R. § 825.300(a)).

• Other Statutes: Additional posters may be mandatory (e.g., USERRA for all employers, EPPA for most private employers, federal contractor notices as described in DOL’s poster advisor).

Electronic posting for remote/distributed workforces:

DOL’s current guidance (see 2020–2023 FAQs and EEOC/OSHA advisories) explicitly permits delivering required notices electronically (e.g., via company intranet, shared drive, or email) if all employees have direct and continuous access without obstacle. Make sure to document this access, particularly for 100% remote workforces, to avoid challenges in a DOL audit.

Enforcement and practical risks:

Failure to post required notices can result in agency fines—such as up to $23,011 for willful failures to post FMLA notices—tolling of employee statutes of limitations, or loss of key defenses in employment litigation (see 29 C.F.R. § 825.300(e); DOL penalty tables). Always use the latest official DOL or authorized EEOC poster, not an unofficial summary—even if obtained from a vendor—unless it reproduces the full prescribed language and format.

Source: 29 C.F.R. § 516.4, DOL Required Posters FAQ, OSHA Poster Guidance, EEOC EEO Poster Guidance

While no U.S. federal law requires an employer to maintain a U.S. bank account, in practice, running payroll for U.S. employees almost always necessitates one. This is because the Internal Revenue Service (IRS) requires employment tax deposits to be made electronically through the Electronic Federal Tax Payment System (EFTPS), and EFTPS direct debit and ACH credits are only feasible from accounts at U.S.-domiciled banks (see IRS Publication 966). Similarly, most state revenue agencies and U.S. payroll service providers rely on ACH networks, which restrict participation to U.S. financial institutions. IRS guidance does not bar foreign companies from hiring U.S. employees, but it is operationally difficult for a foreign company to comply with wage payment and tax deposit rules without a U.S. bank account. IRS Publication 966 confirms employers must use EFTPS and that enrollment requires a valid U.S. bank account for debits; if a company cannot obtain one, tax payments may be delayed, leading to late-filing penalties, although there is no specific penalty for the mere lack of a U.S. account.

Opening a U.S. business bank account is also subject to anti-money-laundering rules under the Financial Crimes Enforcement Network (FinCEN) Customer Identification Program (CIP) regulations (31 C.F.R. § 1020.220), which require banks to collect and verify the identity of business owners and controllers. While these rules do not categorically prevent foreign companies from opening accounts, U.S. banks generally require an Employer Identification Number (EIN), information on beneficial owners, and at least a U.S. business address or registered agent. The process and burden of documentation can be significant, and not all banks will accommodate foreign companies lacking a U.S. presence. Because of these hurdles, many cross-border employers either (i) establish a U.S. legal entity or (ii) engage a U.S. Employer of Record (EOR) or Professional Employer Organization (PEO), which will use its own compliant account to process payroll and taxes.

Employers considering direct U.S. payroll should plan for lead time to establish banking, obtain an EIN, and satisfy customer identification requirements set by both federal regulation and individual banks’ internal policies. While alternative payment options (such as international wires) may exist for some non-wage payments, official payroll and tax systems overwhelmingly expect a U.S.-based account. Absence of one does not itself trigger a penalty—but failure to make timely wage payments or federal deposits does.

Source: IRS Publication 966, Electronic Federal Tax Payment System Source: 31 C.F.R. § 1020.220

In the United States, the payment of wages by direct deposit is governed primarily by state law, with only a limited federal baseline established by the Fair Labor Standards Act (FLSA) and its regulations. Under FLSA regulations at 29 C.F.R. § 531.27, employers must pay wages in "cash or negotiable instrument payable at par" (i.e., check or cash), but the federal law does not address direct deposit specifically. The U.S. Department of Labor (DOL) has clarified that while direct deposit is widely permitted and used, federal law neither requires nor prohibits employers from offering or mandating it. Instead, the authority to regulate direct deposit programs—including employer ability to require employees to receive wages by this method—rests with each state.

Federal baseline: The DOL’s Wage and Hour Division explains that employers may pay wages by direct deposit if the employee receives their wages "finally and unconditionally" and has access to the full amount without delay or undue restriction. The DOL cautions that payroll systems which introduce delays, fees, or limitations on access to full wages may violate FLSA rules requiring prompt payment (29 C.F.R. § 531.27).

State law overlay: Most states permit payment of wages by direct deposit, but state statutes and administrative rules vary on whether employee consent is required, whether employers may mandate direct deposit for all employees, and what alternatives must be offered (such as paper checks or paycards). Some states require written employee consent for direct deposit. Others permit, or prohibit, employers from designating only one method. The DOL provides a portal to each state’s wage payment law for reference, but practitioners must check the specific statutes or agency guidance for each state in which they employ workers. Federal law does not preempt these stricter state provisions. Violations of state wage payment law may result in penalties or wage claims.

In practice, the common approach for multistate or cross-border U.S. employers is to offer—but not require—direct deposit, and to provide a paper check alternative in any state where mandated by law or employee demand. Employers should review the requirements in each work state before finalizing payroll setup.

Source: 29 C.F.R. § 531.27, U.S. Department of Labor, Wage Payment: Methods and Timing

When a business hires in the United States for the first time, it must understand the baseline requirements under federal anti-discrimination law—starting with Equal Employment Opportunity (EEO) compliance and the EEO-1 reporting regime. Unlike basic payroll or I-9 verification obligations (which apply from the first hire), mandatory EEO-1 reporting and certain affirmative action requirements do not attach until the employer crosses a defined size or federal-contract threshold, but core anti-discrimination laws bind private employers from an early stage.

Title VII and ADA Coverage (15-Employee Threshold)

Under Title VII of the Civil Rights Act of 1964 and the Americans with Disabilities Act (ADA), private employers are subject to federal anti-discrimination mandates once they “have 15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding calendar year” (42 U.S.C. § 2000e(b); 42 U.S.C. § 12111(5)(A)). This means a foreign or new U.S. employer with fewer than 15 employees is not covered by Title VII or ADA at the federal level; state or local laws may fill this gap (many apply at 1–4 employees). Once the 15-employee threshold is met, employers must avoid discrimination on race, color, religion, sex (including pregnancy, sexual orientation, and gender identity), and national origin; and provide accommodations under the ADA.

EEO-1 Employer Information Report: 100-Employee Threshold

The EEO-1 Report is an annual federal data collection requirement administered by the Equal Employment Opportunity Commission (EEOC). It applies to private employers with 100 or more employees (including U.S. and any non-exempt foreign employees) and federal contractors with 50 or more employees meeting certain contract value triggers (see 41 CFR § 60-1.7). Covered employers must file the EEO-1 Component 1 Report annually, detailing the race/ethnicity, sex, and job category of employees. Foreign companies hiring in the U.S. are not required to file the EEO-1 until they meet these thresholds, but federal contract bids may trigger earlier obligations.

Affirmative Action Plans: Federal Contractor Overlay

Separate, stricter rules apply to federal contractors. An affirmative action plan (AAP) under Executive Order 11246, Section 503 of the Rehabilitation Act, and the Vietnam Era Veterans’ Readjustment Assistance Act triggers at 50 employees and $50,000 federal contract value. These plans are regulated by OFCCP (Office of Federal Contract Compliance Programs); there is no such requirement for private employers with no federal contracts, regardless of size.

Onboarding and New Employer Registration

New employers with one or a handful of U.S. employees should monitor headcount for impending EEO-1 or AAP triggers, but are not required to register with the EEOC or file reports unless one of the above thresholds is met. Regardless of reporting threshold, all employers are prohibited from discriminatory hiring practices under federal law (at 15+ employees, or lower under many state laws). The EEOC provides stepwise guidance and an eligibility self-check at https://www.eeoc.gov/employers/eeo-1-data-collection.

Source: 42 U.S.C. § 2000e(b), EEOC EEO-1 Data Collection Overview, 41 CFR § 60-1.7, OFCCP FAQs