Hiring and Payroll Compliance for a New U.S. Entity

Before you can legally pay anyone, your entity needs an Employer Identification Number (EIN) from the IRS, which is free to obtain and typically issued quickly once your formation documents are filed. Most states also require a separate state tax withholding account and, in nearly every state, a state unemployment insurance (SUI) account — these are distinct registrations from the EIN and are easy to overlook for founders used to a single-tax-ID system elsewhere.

If you will have employees working from more than one state — including fully remote hires — you generally need withholding and unemployment insurance registrations in each state where an employee is physically working, not just the state where the company is formed.

Classifying a worker as an independent contractor when the working relationship actually resembles employment is one of the costliest and most common compliance mistakes for new U.S. companies. Federal agencies and most states apply multi-factor tests looking at behavioral control, financial control, and the nature of the relationship — job titles or contract language alone do not determine the outcome.

Misclassification exposure includes back payroll taxes, unpaid overtime, benefits claims, and penalties, and it can surface years after the working relationship ends. When in doubt, especially for someone working set hours using company equipment under close direction, treat them as an employee or get a formal classification opinion.

Nearly every state requires employers to carry workers' compensation insurance covering work-related injuries and illness, generally from the point of the first employee hire, with only narrow exemptions for very small businesses in a few states. This is separate from general liability insurance and must be arranged before, not after, your first employee starts.

Federal law requires every new employee to complete Form I-9 to verify identity and work authorization, and Form W-4 for federal tax withholding, with equivalent state withholding forms in states that impose income tax. Most states also require new-hire reporting to a state directory within a short window of the hire date, primarily to support child-support enforcement.

Workplace posters covering minimum wage, workplace safety, anti-discrimination protections, and other notices must be displayed (physically or, increasingly, digitally for remote teams) starting from day one, with requirements varying by state and by employee count.

The Fair Labor Standards Act sets the federal floor for minimum wage and overtime, but many states and some cities set higher minimums, and overtime rules can differ for how they define exempt versus non-exempt roles. Misapplying an exemption — commonly by assuming a salaried employee is automatically exempt from overtime — is a frequent and expensive error for growing companies.

Foreign parent companies setting up a U.S. subsidiary should confirm early whether they need to register for foreign qualification in every state where employees actually work, not just the state of incorporation, since payroll registrations generally follow physical work location. Board members and executives who are not U.S. citizens or permanent residents should also plan immigration status separately from payroll setup — work authorization and payroll compliance are related but distinct problems.

The practical order is: EIN, state tax and unemployment insurance registrations, workers' compensation insurance, a payroll provider or in-house payroll capability, then new-hire paperwork for each employee as they start. Assembling this before an offer letter goes out avoids the common scramble of trying to run a first payroll on short notice.

This article is general information, not legal, tax, or investment advice. Rules, thresholds and fees change and vary by circumstance — confirm current requirements with the relevant regulator or a qualified local advisor before acting.