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.

Employee benefits in the United States consist of both statutory benefits required by federal or state law and voluntary benefits offered by employers to remain competitive in the labour market.

Mandatory benefits: Social Security, Medicare, unemployment insurance, workers’ compensation insurance, family and medical leave, and health insurance for qualifying employers.

Social Security and Medicare: Social Security taxes fund retirement, disability, and survivor benefits, while Medicare provides public health insurance coverage primarily for individuals aged 65 and older. Employers and employees both contribute through payroll taxes.

Unemployment insurance: Governed by the Federal Unemployment Tax Act (FUTA) and state unemployment programmes, unemployment insurance provides temporary financial assistance to eligible workers who lose their jobs through no fault of their own.

Workers’ compensation insurance: Employers are generally required to provide workers’ compensation coverage, which helps cover medical expenses and lost wages resulting from work-related injuries or illnesses.

Family and medical leave: Under the Family and Medical Leave Act (FMLA), eligible employees may take up to 12 weeks of unpaid, job-protected leave per year for qualifying family and medical reasons.

Health insurance: Under the Affordable Care Act (ACA), employers with 50 or more full-time equivalent employees must generally offer affordable health insurance coverage to eligible full-time employees or face potential penalties.

Common perks: Private health insurance upgrades, retirement savings plans (such as 401(k) plans), meal vouchers, transport reimbursements, wellness programmes, and performance bonuses.

Leave policies: There is no federal requirement for paid annual leave. Paid sick leave is governed by state and local laws and may vary depending on the employee's work location. Many employers also offer parental leave and additional paid time off as part of their benefits package.

13th-month salary: The United States does not require a 13th-month salary or bonus payment. However, many employers provide discretionary year-end or performance-based bonuses.

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.

Lawful permanent residents (green card holders) are treated as tax residents until they formally surrender their green card, even if they live abroad long-term. Individuals who meet the substantial presence test, at least 31 days in the current year and 183 weighted days over three years, also qualify as residents.

However, they may still be treated as non-residents if they have a tax home and a closer connection to another country, with certain exceptions for specific groups like students and diplomats.

Personal income tax: For a single taxpayer, the rates are the following:

• $0 – $12,400 → 10%
• $12,401 – $50,400 → 12%
• $50,401 – $105,700 → 22%
• $105,701 – $201,775 → 24%
• $201,776 – $256,225 → 32%
• $256,226 – $640,600 → 35%
• $640,601 and up → 37%

Here are the tax rates for married filing jointly:

• $0 – $24,800 → 10%
• $24,801 – $100,800 → 12%
• $100,801 – $211,400 → 22%
• $211,401 – $403,550 → 24%
• $403,551 – $512,450 → 32%
• $512,451 – $768,700 → 35%
• Over $768,700 → 37%

Withholding and contributions: Here are the withholding rates in the US:

• Dividends: 30%
• Interest: 30%
• Capital gains: 30%

Tax allowances and non-taxable benefits: Citizens, resident aliens, and non-resident aliens may claim a child tax credit if the child is a U.S. resident. For children under 17, the credit is up to USD 2,000 per child, with up to USD 1,700 refundable. The credit phases out at USD 400,000 for married filing jointly and USD 200,000 for all other filers. A non-refundable USD 500 credit is also available for each qualifying dependent who is not a qualifying child.

Deductions and tax reliefs:

• Standard deduction (2026): USD 16,100 (single), USD 32,200 (MFJ), USD 24,150 (head of household)
• Itemised deductions may include mortgage interest, medical/dental expenses, SALT taxes (capped at USD 40,000 through 2029), investment interest, and charitable contributions
• Non-itemisers can deduct cash donations up to USD 1,000 (single) or USD 2,000 (MFJ) from 2026
• Age 65+ additional deduction: USD 2,050 (single) or USD 1,650 per spouse (MFJ), plus a senior deduction up to USD 6,000 (phasing out at higher income levels, 2025–2028)

Other benefits:

• 20% deduction for qualified business income (phases in above USD 201,775 single / USD 403,500 MFJ)
• Foreign tax credits may offset U.S. tax on foreign income (subject to rules)
• Child/dependent care credit: 20%–35% of up to USD 3,000 (one child) or USD 6,000 (two or more)

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.

Common payroll frequencies:

• Weekly (52 pay periods per year)
• Biweekly (26 pay periods per year)
• Semi-monthly (24 pay periods per year)
• Monthly (12 pay periods per year)

Payroll components typically include:

• Base salary and allowances
• Deductions and withholdings
• Payroll tax reporting

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.

Here is a list of public holidays in the USA: