Payroll providers provide a time- and cost-effective solution for SMBs while minimizing risks compared to in-house payroll processing. As a US employer, when you enroll an employee you are indeed required by law:
- to pay a salary and additional compensation according to the offer letter (or employment agreement)
- to comply with federal, state, and local laws related to minimum wage and overtime pay, tax withholdings, deductions, disability, and workers compensation
- to report this information on the employee’s paycheck
- to report this information to the federal and local administrations on a regular basis
- to provide the employee with a yearly statement showing total gross pay, withholdings, and deductions before January 31 of the following year
Why does this affect foreign-based companies in particular?
As a foreign-based company opening a US entity, you may not have the knowledge nor the proper organization yet to process the payroll internally.
When you enter the US market, you need to be 100% focused on business development and the added value you bring on the market rather than spending time learning all the HR administration rules and obligations.
Mastering the payroll process does not make your business grow in the US. However, not complying with US labor and tax laws will surely slow down your business.
To attract and to keep good US employees, you need to “look like” an American employer. In other words, you must apply the US standards and best practices from the very beginning (e.g. salaries are usually paid twice a month in the USA).
1. Overall Process
To open an account with a payroll provider:
- You fill out and submit the application to the payroll provider
- The provider then gives you a demo of the system as well as a detailed quote
- The provider sends you a contract to fill out and sign
- You provide information about your US entity to create an account (see details in section 2.)
- The provider assigns a dedicated payroll specialist to walk you through the online platform and to setup the working process
- The provider onboards your employees for the 1st payroll and provides them with a specific platform account
Once your account is active:
- You provide the payroll specialist with salary instructions and you specify whether there is any additional compensation, such as: bonuses, commissions, allowances, salary raises, expense report reimbursement, etc.
- You have access to a preview (payroll journal) in case you want to check the payroll details before it is processed
- The provider calculates the tax withholdings and deductions for each employee
- The provider withdraws funds from your bank account and processes multiple payments to the US administration and agencies (federal + states + local), to your employees, and to themselves (covering service fees)
- The provider issues paystubs that your employees can download from their personal platform account
- The providers report all the regulatory information to US administration and agencies (federal + states + local)
- Make sure that you understand the process for implementing insurance such as short-term disability and workers compensation, which are mandatory in most states
- If you want to offer a benefits package to your employees (e.g. vacation days, health insurance, or a retirement plan), make sure that you understand how to set them up on the payroll
- Make sure that you have enough funds available in your bank account before each payroll is processed
2. Minimum Requirements
In order to open an account for your US entity, the payroll provider will need the following information from you:
Company Business Information:
- Legal name :
- Business name (“DBA” – if different from above):
- Business entity type (Corporation, LLC, LLP, etc.):
- Web address:
- Office address(es) :
- Mailing address (if different from above):
- Legal address (registered agent):
- Home & office addresses for off-site employees:
- NAICS industry code:
- Federal Tax ID Number (EIN or FEIN located on the CP575A notice ot the SS4 form):
Company Banking Information (US bank account):
- Account number:
- Routing number:
- Voided check or bank statement
Ownership & Signatory:
- Name of owners:
- Name, title, and email address of authorized signer for tax purposes:
State Tax Information:
- Unemployment number:
- Withholding account number:
- Worker’s compensation account number:
- Worker’s compensation contract
Pay Schedule & Employee Information:
- Pay frequency (monthly, semi-monthly, weekly, bi-weekly):
- List of employees:
- Full name & title:
- Hire date:
- Employment type (full-time, part-time, permanent, temporary):
- Compensation type:
- Salary or hourly rate:
- Work address:
- Email address:
- Past year and current year payroll information (if any):
- List of former employees:
- Payroll journals
- Federal and state quarterly reports (form 940 or 941)
To start the implementation, not only do you need to create a US entity & open a US bank account, but you also need to get an unemployment number from each state where your employees are located (work address).
Once you have all the information required in section 2, the payroll provider will guide you through the whole process to get your payroll processing ready.
The fee will depend on the provider and the types of service you need. For basic services, payroll providers calculate a monthly fee based on the number of employees.
It usually ranges from $50/month per employee to $200/month per employee.
The timeline will depend on the information flow and whether you have already created a US entity, opened a bank account, and received the unemployment number from the State. If all the information listed in 2. Minimum Requirements is easy to gather, then you can set up your account with a payroll provider in 1 week.
The materials provided in this US Toolbox are for general information purposes only and are not intended to constitute comprehensive or specific legal, accounting, tax, marketing, or other advice. These materials may not reflect recent developments in the law, may not be complete, and may not pertain to your specific situation and circumstances.TradeSherpa, Inc. assumes no responsibility for errors or omissions in the materials, or for any losses that may arise from reliance upon the information contained these materials. Because these materials are intended to provide only general advice, specific advice should be taken from qualified professionals when dealing with specific situations and circumstances.