You run a company in Europe. You found the person you want, and she lives in Denver.
She is exactly right for the role, she wants to work with you, and she has no intention of leaving Colorado. So how do you actually employ her?
Your European payroll cannot do it. She works in the US, which means US federal payroll tax, Colorado state tax, US benefits, and a W-2 at the end of the year. None of that runs through your system in Amsterdam or Munich.
The good news: you do not need a US company to hire her. You need a legal employer for her in the US, and there are three ways to get one.
Why You Cannot Pay a US Employee Through Your European Payroll
It is worth addressing this early because it is one of the most common mistakes European companies make when hiring in the United States.
Employment laws apply where the employee performs their work. If your employee lives and works in Colorado, US employment rules apply, regardless of where your company is based. That includes federal income tax withholding, Social Security and Medicare (FICA), federal and state unemployment taxes, Colorado income tax, and the state's paid leave requirements. A European payroll system is not set up to calculate, withhold, or pay these obligations, and the IRS does not waive those requirements simply because your business is established in Germany or another European country.
Treating the employee as if they were still on your European payroll, or simply transferring a monthly payment without following US payroll rules, can lead to several issues. The employee may miss out on the protections and benefits provided under US law. At the same time, your company may fail to withhold the required taxes. If the relationship is considered employment, which it often will be, you could also face back taxes, interest, and penalties from the federal government and any states involved.
There is another challenge that many European employers do not anticipate. It is not the federal rules that usually create the biggest surprise. It is the fact that every state has its own employment and tax requirements.
The Thing Nobody Warns You About: Every State Is a Different Country
In Europe, you think of hiring country by country. Germany is not France, France is not Poland. You already know this.
The US works the same way, except the "countries" are states, and one remote team can touch a lot of them fast.
A single employee in California operates under different tax, wage, and benefits rules than one in Texas. Hire a second person in New York and a third in Colorado, and you now have three sets of state registrations, three state income tax regimes, three unemployment insurance accounts, and in several states separate paid-family-leave contributions. A distributed US team of twenty-five people can routinely span eight or more states, each with its own rules, filings, and deadlines.
This is the part the "just set up a US company" advice quietly skips. Incorporating in Delaware is cheap and fast. The multi-state registration tail behind it is neither. That gap between easy setup and expensive operating reality is the whole reason the EOR route exists for US hiring.
Option One: Use an Employer of Record
An Employer of Record is a US-based legal entity that employs your American hire on your behalf. It runs her US payroll, withholds her federal and state taxes, files with the IRS and her state, enrolls her in benefits, and carries the compliance load for whichever states your team lives in. She works for you day to day. On paper, the EOR is her employer.
You pay the EOR her salary, the employer-side taxes, and a per-employee fee.
Right when: you are hiring one to fifteen people in the US, you want them working in days rather than months, and you do not want to incorporate and register in multiple states before you have proven the market.
Wrong when: you have twenty-plus people concentrated in a single state and a permanent US operation. At that point, your own entity starts to make economic sense.
The honest limitation: you are one step removed from the legal employment relationship. Terminations, contract changes, and unusual benefits requests route through the EOR. Most European companies making their first US hires find that trade well worth it, because it removes the single most painful part of US hiring, which is the fifty-state compliance patchwork.
For a European business hiring its first American, this is almost always the right starting point.
Option Two: Set Up Your Own US Entity
Incorporate a US company, usually a Delaware LLC or C-corp, get a federal Employer Identification Number (EIN), open a US bank account, then register as an employer in every state where you have a worker, set up payroll infrastructure, and engage a US accountant.
The incorporation itself is quick and cheap: a Delaware LLC files in about a day and the EIN can be issued the same day for under $100. That is the part people quote. The part they do not quote is everything after: state-by-state employer registration, multi-state payroll setup, ongoing federal and state filings, and US benefits administration. Realistic all-in setup runs from roughly $5,000 to $40,000 depending on how many states you touch, and the compliance obligations are permanent.
Right when: the US is a strategic, long-term market, your headcount in one state is heading past ten or fifteen, and you have finance capacity to carry US compliance. If you already run global payroll across multiple countries, adding a US entity is a known quantity, though the US multi-state layer is heavier than most single European countries.
The trap European companies miss: a US entity does not spare you the state problem. You still register and file in every state where an employee lives. Incorporation gives you a US employer; it does not give you fifty states of compliance for free. Many companies end up running their own entity for their concentrated main-state team and an EOR for the remote tail spread across everywhere else.
Option Three: Engage a Contractor
Fastest and cheapest, and legitimate only when the relationship genuinely is contracting.
A contractor arrangement works when they set their own hours, use their own equipment, work for other clients, invoice for deliverables, and handle their own taxes. You collect a Form W-9, pay their invoices, and issue a 1099 at year-end. No payroll, no withholding, no state registration.
It does not work when she is effectively an employee: full-time, exclusive to you, on your schedule, using your systems, reporting to your manager. The US applies its own tests to this, at both the IRS and state level, and states like California apply a strict "ABC test" that treats most full-time workers as employees regardless of what the contract says. Misclassification exposes you to back taxes, unpaid overtime, penalties, and the employer-side contributions you skipped.
Contractors are a real option for genuinely independent work. They are not a route for a full-time hire, and the US penalties for pretending otherwise are steep.
What It Actually Costs
For European finance teams, the surprising part of US employment is not the federal tax rate. It is lower than you expect. The surprise is the fragmentation.
Federal employer-side costs are modest by European standards. FICA is 7.65% of wages (6.2% Social Security up to the annual wage cap, plus 1.45% Medicare), and federal unemployment (FUTA) is a small amount per employee. Compared with employer social contributions of 20% to 45% across most of Europe, the headline US employer burden is light.
Then the state layer lands on top, and it varies wildly: state unemployment insurance (SUTA) with a different wage base and rate in every state, state disability and paid-family-leave contributions in a growing number of states, and workers' compensation insurance, which is mandatory in almost every state and priced by role and location.
The result is that a US hire is cheaper than a European one on employer taxes, but far more fragmented to administer. Employer costs vary enough by state that where in the US your employee lives changes both the cost and the paperwork.
Add the EOR fee if you go that route. Ours is $579 per employee per month, flat, with no deposit and no pre-funding. Some US EOR providers hold a deposit or charge percentage-based fees, so it is worth confirming the full pricing structure before you sign, since it rarely appears in the headline number.
What Catches European Companies Out in the US
At-Will Employment Cuts Both Ways
Most US states are at-will, meaning either side can end the relationship at any time, usually with no statutory notice period and no severance. To European employers used to notice periods and dismissal protections, this feels alarmingly loose. It also means your European instincts about termination process do not apply, and building in contractual notice is a choice, not a default.
Health Insurance Is an Employer Expectation, Not a Statutory Contribution
There is no national health system funded by payroll tax. Employees expect employer-sponsored health insurance as a core benefit, and for a small US team it can be one of the larger line items. An EOR gives you access to group rates a foreign company could not get alone.
Benefits Are Thinner on Paper, Richer in Practice
There is no statutory minimum paid vacation in the US at the federal level. But to compete for good people, you will offer paid time off, health cover, and often a 401(k) retirement plan anyway, because that is the market norm. Budget for the market rate, not the legal minimum.
The 50-Employee Cliff is Real
Once you hit 50 full-time-equivalent US employees, the Affordable Care Act's employer mandate applies, with significant per-employee penalties for getting it wrong. Not a first-hire problem, very much a scaling problem to plan for.
"The US" Is Not One Jurisdiction
This is the point worth repeating, because it is the one that costs European companies the most. What a US hire actually involves depends on the state, and a remote team spreads that across many of them at once.
So What Should a European Company Actually Do?
Hiring one to fifteen Americans and want them working this month, without incorporating in the US? Use an EOR. It removes the fifty-state compliance problem entirely and gets your hire on payroll in days. For most European companies making their first US hires, this is the answer.
Building a concentrated US team of twenty-plus in one state, with a permanent commitment to the market? Set up the entity. The economics justify it at that scale, and you gain full control.
Is the work genuinely project-based, with someone who has other clients? A contractor arrangement is fine, as long as it can survive the IRS and state classification tests. Is it a full-time role? Do not label it contracting to avoid payroll. US penalties make that a false economy.
The common pattern, and a sensible one: start on an EOR for the first handful of US hires, incorporate a US entity once a single state crosses ten or so people, and keep the scattered remote employees on the EOR. You get speed early and control later, without paying for fifty states of compliance before you need it.
The pattern is the same for companies headquartered elsewhere, though the details shift. Hiring in the US from Asia runs into the same three routes with a harder time zone problem attached.
Frequently Asked Questions
Can a European Company Hire a US Employee Without a US Entity?
Yes, through an Employer of Record. The EOR is a US-based legal entity that employs the person on your behalf and handles federal and state payroll, tax withholding, benefits, and compliance. You direct the work. The alternative is incorporating your own US company and registering as an employer in each state where you have staff, which takes longer and costs more upfront.
Can a European Company Put a US Employee on Its European Payroll?
No. US employees must be paid under US law, with federal and state tax withholding, FICA, and US benefits. A European payroll system cannot produce any of that, and the arrangement risks back taxes and penalties in the states involved.
How Much Does It Cost a European Company to Hire in the US?
Salary plus employer-side taxes, which are lower than Europe's: FICA at 7.65% plus state unemployment and workers' compensation, which vary by state. On top of that comes the cost of your chosen route: a per-employee EOR fee, or the setup and ongoing compliance cost of a US entity, which runs from roughly $5,000 to $40,000 to establish.
How Fast Can a European Company Hire Someone in the US?
Days, through an EOR, once documentation is complete. Setting up your own US entity and registering as an employer across the relevant states takes weeks to a few months before you can run payroll.
Does the US Employee Need Any Visa or Sponsorship?
No, if they are already a US citizen or authorized to work in the US and are staying in the US. You are employing someone who already lives and works there, so no immigration process is involved. Sponsorship only enters the picture if you are relocating a non-US worker into the country, which is a separate matter.
