How do you set up a business in the USA? Payroll, HR and entering the American market

Updated on 12 April 2024

America has long considered itself the land of opportunity, especially regarding business affairs.

Quick, easy, no commitment!

As Frank Sinatra memorably claimed about New York, “if you can make it there, you can make it anywhere” – but is the American Dream still a valid lifestyle, or will an attempt to trade in the modern USA become a nightmare?

Video: Understanding international payroll

Does the USA welcome overseas businesses?

If you can prove that your business will make money, and benefit the local labour force, you will typically be invited to trade in the USA. This country places great emphasis on capitalism and the opportunity to make money, so good ideas that make this possible are always welcome.

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What industries are most popular in the USA?

The most popular business sectors in the USA are:

  • IT and technology
  • Education
  • Health services
  • Business services, including consultancy
  • Retail
  • Manufacturing
  • Hospitality
  • Construction
  • Financial services

Obviously the USA is a vast country, so this list is not exhaustive. Some states will welcome investment in agriculture, for example. Consider where you would like to do business and build your offering around local needs and available talent.

Is it easy to set up a business in the USA?

It can take some time, and you’ll need to make a lot of important decisions, to start a business in the USA. Different states will have varying rules, so there may be additional steps if you choose to register in some locations. This is the general policy, though.

How to set up a business in the USA

  1. Choose which state you wish to register in

    Many factors will influence this, including marketplace needs, available labour force, and local taxation

  2. Decide on the best business model for your company

    This is typically an LLC or C Corporation

  3. Choose a company name

    Be careful of trademark registrations that you may infringe if you don’t check

  4. If you plan to live and work in the USA, find a business address

    If you don’t want to rent office space, you can typically use a post office box in most US states

  5. Register your business

    If you plan to remain overseas while trading in the USA, use a registered agent for this

  6. File for a certificate of incorporation

    You can do this online in most US states

  7. Register for franchise tax

    A local agent or business advisor can help with this if necessary

  8. Apply for an Employer Identification Number (EIN) and a Taxpayer Identification Number (TIN)

    You can do this online in most US states

You will not be obligated to open a local bank account, but it will make your business affairs considerably easier if you do so.

Can I run a business in the USA while living overseas?

Yes, you will not need to be a citizen to operate a business that trades out of the USA. Find a registered business agent to act in your stead and take care of the financial implications and ensure you do not fall foul of any state or federal employment laws.

Cultural considerations when running a business in the USA

If you wish to trade in America, understand how to appeal to your potential partners. Cultural nuances in the USA include:

  • Never be ashamed of self-promotion. Americans place a great deal of value on educational and workplace achievements. There is nothing to gain by being modest
  • You should invite anybody that attends a meeting to express their opinion. You are not obligated to act upon it, but do not shut anybody down
  • Read the room when in a meeting. Some American businesspeople like to foster a personal relationship, while others like to get down to brass tacks straight away. One thing is universal, though – the almighty dollar is king and your partners will be keen to strike a deal
  • American businesspeople loathe wasting time. Set out your stall at the beginning of a meeting and make it clear what you have to offer, and let your partners decide if they are interested in proceeding
  • Before signing any contracts, get legal representation and plan your exit strategy from a deal. Business is heavily regulated in the USA, and you can fall foul of regulations if you do not read the small print

What business structures are supported in the USA?

There are two primary structures if you wish to establish a business in the USA.

Limited Liability Company (LLC)A separate business entity kept independent of your personal finances and legal affairs. This business model means that you will pay personal taxes, not corporate taxes
C CorporationA publicly traded company, where employees or members of the public can purchase shares. Shareholders will pay personal taxes, while the business will be liable for corporate tax
Types of US business entity

You could open a branch of an overseas business, but you will still need to register as a C Corporation to achieve this.

Taxation in the USA

If you want to do business in the USA, you must understand the taxation rules and regulations that will impact your bottom line. 

What is the corporate tax rate in the USA? 

Most businesses in the USA will pay two sets of corporate taxes on annual profits – federal and state. Exceptions to this rule are South Dakota and Wyoming, which do not levy either tax on businesses, and Nevada, Ohio, Texas, and Washington, which charge federal tax plus gross receipts taxes, which means you’ll pay a tax on your gross income, not profit.

The rate of federal corporate tax is 21% on annual profits. State taxes vary from 2.5% (North Carolina) to 12.5% (Ohio.) 

The USA has a double taxation agreement with the UK, so you will not be taxed twice on your profits.

What are the employee income tax brackets in the USA?

Income tax is levied on a federal level in the USA. Income tax brackets are as follows.

Annual salaryIncome tax rate
$10,275 or lower10%
$10,276 – $41,77512% plus a flat fee of $1,027.50
$41,776 – $89.07522% plus a flat fee of $4,807.50
$89,076 – $170,05024% plus a flat fee of $15,213.50
$170,051 – $215,95032% plus a flat fee of $34,647.50
$215,951 – $539,90035% plus a flat fee of $49,335.50
$539,901 or higher37% plus a flat fee of $162,718
Federal income tax bands in the USA

Employers must withhold income tax from employee wages and file these contributions with the IRS. Most employees will also need to file tax returns with the IRS at the end of the financial year, but this is the individual’s responsibility.

How are taxes paid in the USA?

The American financial year mirrors the calendar year – it runs from January 1st to December 31st. All tax returns must be filed with the IRS, alongside any payments due, by April 15th of the following year. This means an employer must file and pay their 2023 taxes for 2023 by April 15th 2024.

Payroll and hiring employees in the USA

Hiring the right talent can make or break a company. Ensure your American business interests are staffed by the best possible talent.

See our guide to international payroll.

Does the USA welcome overseas talent?

The American authorities welcome top-tier international talent, especially in industries that need such an injection, but will not necessarily make the process easy. You will need to prove that the local workforce cannot fill your employment needs – the USA has no interest in importing mid-tier or mediocre employees from overseas.

Who needs a visa or work permit to work in The USA?

Anybody that does not hold an American passport will need a work permit, visa or Green Card to legally work in the country. 

What employee benefits are compulsory in the USA?

Every state in the USA will have their own set of minimum standards regarding benefits. The only federal mandatory benefits throughout the nation are:

  • Medicare tax, payable at 1.45% of the employee’s salary
  • Social security payments, totalling 6.2% of an employee’s salary
  • Contributions to state and federal unemployment insurance. This percentage varies according to the state you trade in
  • No less than 12 weeks of protected family leave (such as maternity leave)

This package is unlikely to attract American employees, who will look for superior benefits from any employer. Consider what supplementary benefits you can offer, especially surrounding private healthcare and dental insurance, flexibility in working hours, and a retirement fund such as an IRA.

Employment law considerations in the USA

There is no single minimum wage across the USA – it varies according to state as follows.

StateMinimum hourly wage (2022)
District of Columbia$15.20
New York$13.20
Connecticut and New Jersey$13
Maine and Oregon$12.75
Rhode Island$12.25
New Mexico$11.50
Arkansas and Virginia$11
South Dakota$9.95
West Virginia$8.75
Idaho, Indiana, Iowa, Kansas, Kentucky, New Hampshire, North Carolina, North Dakota, Oklahoma, Pennsylvania, Texas, Utah and Wisconsin$7.25
Georgia and Wyoming$5.15
Minimum hourly wages by US state

Most American companies operate “at will” employment contracts, so you can hire somebody on the spot if your business is up and running. On paper, you can also instantly terminate employment. Some industries unionise to protect workers’ rights, so see if this applies to your business model.

Check the local state law that applies to your business, ensuring that you do not fall foul of local laws. Generally, though, employment law favours employers over employees in the USA.

Cultural considerations when hiring employees in the USA

If you are looking to populate a staffing team with the strongest possible pool of talent, you’ll need to understand some of the cultural nuances of working with American employees. These include:

  • The typical American workplace is multicultural, and you’ll be expected to show sensitivity. Something as innocuous as wishing an employee “merry Christmas” instead of “happy holidays” can land you in trouble 
  • Benefits, especially healthcare, are a huge deal for American employees. Create an appealing package to entice the best employees
  • American employees are driven and will do what it takes to get ahead in their careers. This means you will always be at risk of losing top-tier talent to rival businesses that offer higher salaries, superior benefits packages, or greater opportunities
  • Your employees are likely to be quite direct with you – time is money, after all. Do not mistake bluntness for rudeness
  • Much like the minimum wage, basic standard salaries vary from state to state. You may find salary expectations a little higher than for equivalent roles in the UK though
  • Salaried American employees work long hours, rarely taking a full hour for lunch, and tend to be glued to their cell phones when not working, so they will not bat an eyelid if you call them out of hours

FAQs about setting up a business in the USA

Still have questions or are seeking a swift answer to a basic query? Here are some of the most frequently asked questions about establishing a business in the USA.

What are the entry options for foreign companies wanting to set up in the US

You can set up a Limited Liability Company, known as an LLC, or a public trading company, referred to as a C Corporation.

How long does it take to set up an American entity?

All states have their own paperwork hoops to jump through, but it’s probably safe to say it will take at least 12 weeks before you are ready to start trading.               

What is the total cost of employment to hire an employee in America?       

This depends on the benefits package you offer your employees, as in many respects this will be just as important – if not more so – than salary. Expect to pay no less than 1.3 times an employee’s annual salary – potentially more.

What is the minimum share capital required to establish an entity in America?

If you are setting up a business, there is no minimum share capital. If you need a Green Card as a business investor, you’ll need to pay at least $500,000 – often $1,000,000.

Do you need to set up a local bank account in America?

Having an American bank account is not mandatory, but it will make your life much easier.

What is the standard working week in America?

According to law, the American workplace operates from 9–5, from Monday to Friday, with the working week capped at 50 hours unless you’re prepared to pay overtime. For good or ill, this is rarely abided by – most employees expect to work longer hours.

What are common supplementary employee benefits in America?

Benefits are a big deal in the USA. If you aim to attract the best talent, you should offer a compelling private healthcare and dental insurance policy for employees and their families, along with a retirement package, flexibility in working hours and location, and company cars.

In America, can employment contracts be terminated at will by the employer?

Most states in the USA operate “at will” recruitment, meaning that employers can hire and fire on the spot and without a compelling reason. Just remember this works both ways. You may expect two weeks’ notice if an employee quits, but they are not legally bound to provide it unless contracted accordingly.

Is there any standard annual leave entitlement in America?

There is no federally-assigned minimum holiday for employee paid vacation, but most companies offer 10 days. The USA also has considerably more public holidays than the UK, with different states celebrating varying occasions.

Can you establish a branch of your company in America?

The best way to take advantage of established overseas branding is setting up a C Corporation in the USA.

What is the Medicare tax in America?

Medicare is the closest thing the USA has to an NHS. It’s not free at the point of service, but it offers affordable healthcare to the vulnerable – especially over 65s and the disabled. All employees and employers each pay a Medicare tax of 1.45% of a monthly salary.

What is an Entrepreneur Visa?

An entrepreneur visa will allow you to live and work in the USA for five years. The visa must be renewed after this time. You will need to prove that you can support yourself, pay employees promptly, and operate a business that benefits the national interest to be awarded an entrepreneur visa.  

What is a Green Card and can you get one by establishing a business in the USA?

A Green Card allows you to live and work in the USA permanently and without restriction, so you can come and go as you please. It’s easier to gain a Green Card as a skilled employee than a business owner. In the latter case, you’ll need to prove that you have the business acumen to run a successful company that operates in the national interest, or you can buy your way to a Green Card by investing $1,000,000 into local business ($500,000 in some economically deprived areas.) 

Reviewed by , Managing Director

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