Foreign Companies Legally Hiring Employees in the US

The United States became the leading destination for foreign direct investment in 2019 and it remained in that position in 2020. Our European, South and Central American, and Asian clients increasingly want our assistance in establishing their international corporate structure, which often includes a US state-registered company. These foreign companies then want assistance navigating US business laws, including how to legally hire employees in the United States to work for them.

Though the process of legally hiring employees is fairly straightforward in the US, the procedures do vary slightly state by state.

Below I go over the process for hiring an employee in the state of North Carolina. I have chosen North Carolina as the example here because we recently went through all of this with a Brazilian company that was looking to set up in North Carolina and because North Carolina is fairly representative of what it takes to legally hire an employee in the United States.

1. Apply for and receive a Federal Employer Identification Number

A Federal Employer Identification Number (FEIN) is a number that is assigned to your US company by the US federal government’s Internal Revenue Services (IRS). Besides filing taxes, your US company will require a FEIN to open a bank account and hire US-based employees.

2. Register the company with the North Carolina Secretary of State.
3. Register the company with the North Carolina Department of Revenue.
4. Register for an Unemployment Insurance Tax Number from the North Carolina Division of Employment Security.
5. The employee must fill out the I-9, Employment Eligibility Verification Form from U.S. Citizenship and Immigration Services.

One section of this form must be completed by the employee by the 1st day of employment and the second section must be completed by the company by the 3rd day of employment. This form is not submitted but the company must keep the form on file for three years after the date of hire or one year after the employee’s termination, whichever is later.

6. The employee must provide the company with a signed Withholding Allowance Certificate (Form W-4) on or before the date of employment.

This form must be signed on or before the date employment commences. This form is not submitted to the IRS, but the US company keeps it on file.

7. The company must report the newly hired employee to the North Carolina Department of Health and Human Services within 20 days of the employee’s date of hire.

Employee information that is reported includes the employee’s name, address, Social Security Number, date of birth, and the employee’s start date. Employer information that is reported includes the US company’s FEIN, name, address, and contact phone number.

8. Federal Income Tax Withholding

The company must withhold money from the employee’s paycheck to pay the employee’s federal income taxes based on the information provided in their W-4. The company pays no part of the withholding tax but is responsible for collecting and remitting the withheld taxes. Federal income tax withholding reports are filed using Form W-2, Wage, and Tax Statement with the IRS. IRS Form 941 is due quarterly, and IRS Form 940 is filed annually to report any unemployment taxes due.

9. State Income Tax Withholding

Same as for federal, the company must withhold a portion of each employee’s paycheck for state income tax.

10. Social Security and Medicare

These taxes are paid under the Federal Insurance Contributions Act (FICA). The company pays half of FICA, and the other half is paid from the employee’s wages.

11. Unemployment Insurance

Companies pay state and federal unemployment taxes based on a percentage of each employee’s salary. This tax is known as State Unemployment Taxes (SUTA) and Federal Unemployment Taxes (FUTA).

12. Workmen’s Compensation Insurance

All companies with employees are required to carry workers’ compensation insurance coverage to cover medical costs if employees are injured on the job. IIn North Carolina, Worker’s Compensation Insurance is administered through the North Carolina Industrial Commission.

13. Labor Law Posters and Required Notices

Companies must display Federal and State of North Carolina labor law posters where they can be easily viewed by employees. North Carolina labor law posters can be individually printed from the North Carolina Department of Labor’s website.

Be Thorough When Hiring Employees in the US

The process of foreign companies legally hiring employees in the US can seem daunting, but it is important to thoroughly proceed through the above or whatever similar steps are suitable for your US state-registered company.

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