Payroll & Employment Guide USA

Employment contracts in the U.S. establish and define the terms and conditions of the employment relationship between the employer and the employee. Although they can be written, oral, or implied, written contracts are preferred for establishing better clarity on terms like salaries, working hours, benefits, notice periods, and similar.

Notice periods: No legally required period (on the federal level).

Termination of employment: At-will employment - termination can occur at any time, with or without cause, and with or without notice.

Employers in the U.S. are typically required to provide health insurance, retirement plans, and paid time off. Many of them also offer extra perks to stay competitive in the job market. Understanding both of them is essential to attracting and retaining talent.

• Mandatory benefits: Social security, Medicare, and unemployment benefits.
• Social security and Medicare: Social security taxes in the U.S. fund the national retirement system and Medicare, the public health insurance program for individuals aged 65 and older. Social security also provides income support for those unable to work due to disability and offers survivor benefits to dependents of deceased workers.
• Unemployment insurance: Unemployment insurance, governed by the Federal Unemployment Tax Act (FUTA), offers financial assistance to individuals who are unemployed but actively seeking work.
• Workers’ compensation insurance: Workers' compensation insurance provides financial assistance and covers medical expenses for employees who are unable to work due to job-related injuries or illnesses.
• Family and medical leave: The Family and Medical Leave Act (FMLA) entitles eligible employees to up to 12 weeks of job-protected, unpaid leave each year for specific family and medical reasons, such as caring for a newborn or an ill family member.
• Health insurance: The Affordable Care Act (ACA) mandates that qualifying businesses provide affordable health insurance coverage to their full-time employees.
• Common perks: Meal vouchers, transport reimbursements.
• Leave policies: Paid annual leave, sick leave, parental leave.
• 13th-month salary: The United States does not require any type of 13th-month payment. However, many companies do offer an end-of-the-year/December bonus, which is usually tied to the employee's productivity.

The U.S. operates a multi-layered tax system that applies at the federal, state, and local levels. Employers are responsible for withholding federal income tax, Social Security, and Medicare contributions from employee salaries, as well as paying their share of these contributions.

Federal income tax brackets for 2025: The top marginal tax rate remains 37% for incomes over $626,350 (single) / $751,600 (married).

Other brackets:

• 35%: $250,525+ (single) / $501,050+ (married)
• 32%: $197,300+ (single) / $394,600+ (married)
• 24%: $103,350+ (single) / $206,700+ (married)
• 22%: $48,475+ (single) / $96,950+ (married)
• 12%: $11,925+ (single) / $23,850+ (married)
• 10%: Below $11,925 (single) / $23,850 (married)

Social security and medicare taxes

Social security tax

Both employers and employees are responsible for paying Social Security taxes. Employers contribute 6.2% of each employee's wages, while employees match this rate. Self-employed individuals pay a total of 12.4%.

Medicare tax

Medicare tax is also shared between employers and employees. Each party contributes 1.45% of an employee's wages, totalling 2.9%. Self-employed individuals pay this full rate as well.

Additionally, an extra Medicare tax may apply for high earners. This tax, set at 0.9%, kicks in once an employee's income exceeds certain thresholds.

Federal unemployment tax

Under the Federal Unemployment Tax Act (FUTA), employers are required to pay unemployment taxes, which fund programs that assist individuals who are unemployed. Employers contribute 6% on the first $7,000 of each employee's annual wages. Certain state rules and credits may apply to reduce this rate.

State unemployment tax

The State Unemployment Tax Act (SUTA) mandates that employers contribute to state unemployment benefits. This is typically an employer-only payroll deduction, although some states may require employee contributions as well.

Other tax considerations: Beyond federal obligations, additional taxes may apply depending on the state, including state income tax, unemployment insurance, and royalty or sales tax, which vary widely.

• Personal income tax rate: 10% – 37% (federal)
• VAT (sales tax): 2.90% – 11.50% (combined state and local rates)
• Tax allowances: Child tax credits
• Additional tax reliefs: Dependent care expenses

Payroll practices in the U.S. are governed by both federal and state laws. Employers must pay wages according to the terms set in employment contracts and in compliance with minimum wage laws.

Payroll practices in the U.S. are governed by both federal and state laws. Employers must pay wages according to the terms set in employment contracts and in compliance with minimum wage laws.

There are, generally, four different periods in which companies pay their employees. These are weekly, biweekly, semi-monthly or monthly.

Weekly – employees get paid once per week, which equals 52 paychecks in a year.

Biweekly – employees get paid once every two weeks, which equals 26 paychecks in a year.

Semi-monthly – employees get paid twice per month, which equals 24 paychecks in a year.

Monthly – employees get paid once per month, which equals 12 paychecks in a year.

Also, payroll calculations consist of 4 main components:

• Basic pay allowances
• Deductions
• IT declarations

Salary payment deadline: Companies typically pay their employees in four distinct periods. These are weekly, biweekly, semi-monthly or monthly.

Taxes and contributions payment deadline: Tax season is the period generally between January 1 and April 15 of each year, when individual taxpayers prepare to report their taxable income to the federal government and, in most cases, to the state government in which they reside.

Payroll currency: U.S. Dollar

The legal framework of labour relations in the U.S. is primarily defined by federal laws. These laws cover aspects such as employment classification, minimum wage, working hours, anti-discrimination, overtime, and termination procedures. To stay compliant, employers must carefully follow both federal and state-specific regulations.

Total employment cost:

• Employer’s social security contributions: 6.2%
• Employer’s Medicare contributions: 1.45%
• Employer’s Federal unemployment tax (FUTA): 6%
• Employees’ social security contributions: 6.2% (up to a wage limit of $176,100)
• Employees’ Medicare contributions: 1.45%

Minimum wage: $7.25 per hour

Probation period: From 30 to 90 days.

With EOR services, every business can legally employ individuals in the U.S. without opening local legal entities. The EOR takes over all the legal responsibilities as your team’s official employer, including:

• Legal employment and contracts
• Payroll processing
• Tax withholding
• Benefits administration
• Onboarding/offboarding employees

With PEO services in the U.S., you can get the necessary HR and administrative support while you remain the legal employer. PEO services are beneficial for employers who already have legal entities in the country but need support to manage their workforce operations, including:

• HR support and workforce administration
• Payroll and benefits management
• Compliance and local labour law guidance
• Employment contracts assistance

With Native Teams’ locally adjusted payroll calculator, you can easily estimate net and gross salaries, employer and employee contributions, and other mandatory deductions in the U.S.