Setting Up to Hire in the U.S.: Entity, EIN, PEO and EOR

How to hire your first people in the U.S.

An Italian company that wants a salesperson in New York or an engineer in Austin has four realistic options: an independent contractor, an Employer of Record (EOR), a U.S. entity using a Professional Employer Organization (PEO), or its own U.S. entity running payroll directly. None is permanent, but switching costs time and goodwill, so understand the trade-offs before the first offer letter.

Independent contractor

The Italian company signs a services agreement with a U.S. individual, who invoices and pays their own self-employment tax. Setup is almost free (payment platforms charge roughly $0 to $50 per contractor per month). The problem is classification: U.S. law looks at the reality of the relationship, not the contract label. In February 2026 the Department of Labor proposed replacing its 2024 rule with a test centered on control and the worker's opportunity for profit or loss; as of September 2026 it was not yet final. States are often stricter: California (AB 5), New Jersey, Illinois and Massachusetts apply "ABC" tests that presume employment. A full-time "contractor" who works only for you, on your schedule, reporting to your sales director, is almost certainly an employee.

Employer of Record (EOR)

An EOR is a U.S. company that becomes the legal employer. It runs payroll, registers in the worker's state, provides benefits and workers' compensation, and bills you a fee plus salary, employer taxes and benefits. You direct the daily work. The large platforms (Deel, G-P, Justworks, Remote, Oyster) charge a monthly fee per employee, with some lower-cost providers and negotiated enterprise rates. Expect a deposit (often one to two months of payroll cost) and fees for onboarding, currency conversion, off-cycle payroll and terminations. Pros: hire in days, no entity, compliance handled. Cons: costly per head, standardized benefits, awkward equity grants, and it does not remove permanent establishment risk if the employee concludes contracts for the Italian company.

PEO (co-employment)

A PEO requires your own U.S. company with an EIN. It becomes a "co-employer": it runs payroll, places your staff in its large-group health plans and workers' comp policy and supplies HR support, while your entity remains the employer. Pricing is typically 3% to 8% of payroll or a flat fee; NAPEO research cited by the industry puts the average near $1,395 per employee per year. The main attraction for a small team is large-group health insurance.

Own entity with direct payroll

You form a subsidiary, register it in each state where staff work, buy workers' comp and choose a payroll provider (ADP, Gusto, Paychex, Rippling) and a benefits broker. Foothold America estimates $3,000 to $5,000 to set up and $3,250 to $7,350 a year in fixed costs (franchise tax, registered agent, tax preparation, payroll software, HR support); bespoke legal and transfer pricing work is extra. Per-employee costs then fall well below EOR fees.

When to switch

The break-even between EOR and entity is usually six to seven U.S. employees. Switch sooner if U.S. customers require a U.S. counterparty, you invoice U.S. revenue, you need equity plans or Delaware-C-corp investors, or senior salespeople could create a permanent establishment. Allow six to eight weeks to move staff from an EOR to your payroll, and check the EOR contract for conversion fees before signing.

Cygic Recruitment does not provide legal, tax or payroll services; we introduce vetted EOR and PEO providers, employment counsel and CPAs. See also Payroll.

Choosing the U.S. entity

Subsidiary or branch?

A branch is the Italian S.p.A. or S.r.l. itself registered in a U.S. state. The parent is directly liable for U.S. debts and employment claims, files Form 1120-F on U.S. income, may owe branch profits tax (reduced under the treaty; confirm the rate with your CPA), and as a "foreign reporting company" must still file BOI with FinCEN. A subsidiary is a separate U.S. company that ring-fences liability, is taxed like any U.S. business, is exempt from BOI, and is what banks, landlords and employees expect. For employing people, almost every Italian group chooses a subsidiary.

LLC or C-corporation?

A C-corporation pays 21% federal tax plus state tax; dividends to Italy bear treaty withholding of 5% for a parent holding at least 25% of the voting stock for 12 months (subject to the limitation on benefits article). It is well understood on both sides, required for venture funding and stock options, and keeps the parent out of direct U.S. filing. A single-member LLC owned by an Italian company is by default "disregarded": its income is treated as the parent's, which must then file Form 1120-F and may owe branch profits tax, while Italy may treat the LLC as opaque (a hybrid mismatch). It can elect corporate taxation on Form 8832, but then offers little over a C-corp. Rule of thumb: corporate groups use a C-corp.

Delaware or the operating state?

Delaware offers the Court of Chancery, predictable law and investor familiarity. A corporation pays franchise tax (minimum $175 under the authorized-shares method, $400 under the assumed-par-value method) plus a $50 annual report, due March 1; LLCs pay a flat $400 by June 1 (recently raised from $300). But a Delaware company with staff in New Jersey must also qualify, pay and file in New Jersey. If you will not raise U.S. equity, forming in the operating state removes a layer of fees.

Foreign qualification

In state law, "foreign" means another U.S. state. A Delaware company with employees in California must file a Statement and Designation by Foreign Corporation, appoint a California registered agent and pay California's $800 minimum franchise tax. A regular in-state employee usually triggers payroll registration, qualification and income tax nexus. Failing to qualify triggers back fees and penalties and can bar the company from suing in that state.

Registrations: federal, state and local

EIN for foreign owners

The Employer Identification Number is the company's IRS identifier, needed for banking, state registrations and returns. The online application is unavailable without a U.S. presence or when the responsible party has no SSN or ITIN. Under the December 2025 Form SS-4 instructions you can call 267-941-1099 (6 a.m. to 11 p.m. Eastern, weekdays, caller must be authorized), fax 304-707-9471 from abroad (about four business days), or mail it to the EIN International Operation in Cincinnati (about four weeks). On line 7b write "Foreign" or "N/A" if the responsible party has no SSN or ITIN.

Federal payroll

Enroll in EFTPS to deposit taxes. Employer FICA is 7.65%: 6.2% Social Security up to the 2026 wage base of $184,500, plus 1.45% Medicare uncapped. FUTA is 0.6% on the first $7,000 per employee, higher in credit-reduction states (California: 1.2% for 2025; a 1.5% reduction is projected for 2026). File Form 941 quarterly, 940 annually and W-2s by January 31.

State withholding and SUI

Each work state requires an income tax withholding account with its revenue department (none in Texas or Florida) and a state unemployment insurance account with its labor agency. New employers pay a standard rate, for example 3.4% on $7,000 in California or 4.1% on $17,600 in New York for 2026. Some states add payroll-funded disability and paid family leave (NY, NJ, CA, MA and others).

Local taxes

New York City and Yonkers income tax is withheld for residents, and the MCTMT applies to employers in the New York City region above a quarterly payroll threshold. Other examples: Ohio municipal taxes, Pennsylvania local earned income tax, Kentucky occupational taxes, Kansas City and St. Louis earnings taxes and Newark's 1% employer payroll tax.

New-hire reporting

Each new or rehired employee must be reported to the state new-hire directory, generally within 20 days (Georgia: 10), for child-support enforcement. Payroll providers usually file it. Multi-state employers may elect one reporting state after notifying the federal Office of Child Support Services.

Workers' compensation

No-fault insurance for work injuries, mandatory from the first employee in NY, NJ, CA, IL, MA and OH (Ohio via the state fund only), from four in Florida (non-construction) and three in Georgia and North Carolina. Texas employers may opt out as "non-subscribers" but lose key legal defenses and must notify the state. New York also requires disability (DBL) and Paid Family Leave (PFL) coverage.

Registrations checklist by state

Agencies involved when your first employee works in each state. SUI figures are 2026 new-employer rates and wage bases from payroll sources; confirm with the agency. Foreign qualification is always with the Secretary of State (Florida: Division of Corporations).

Some agencies issue account numbers online the same day; others take two to six weeks, and a missing SUI number delays the first payroll. Other states: see the state guide.

Banking for a foreign-owned company

U.S. banks must identify beneficial owners (25% or more, plus one controlling person), and foreign ownership triggers enhanced due diligence. Prepare the certificate of incorporation, bylaws, IRS EIN letter, board resolution, passports of signatories and owners, the Italian parent's visura camerale and shareholder register (often translated) and a note on source of funds.

• Traditional banks often want a signatory in person at a U.S. branch. U.S. branches of European groups can sometimes be introduced through your Italian bank.
• Online business banks such as Mercury accept U.S.-formed companies with international founders (with excluded countries) and open remotely; credit and trade finance may later need a traditional bank.
• Funding: payroll providers debit one to four business days before payday, so capitalize at least two to three months of payroll, documented as equity or an arm's-length loan.

Insurance before day one

• Workers' compensation: required almost everywhere; for office roles usually a few hundred dollars per employee per year.
• EPLI: covers discrimination, harassment, retaliation and wrongful-termination claims, the most frequent suits against small employers. Insureon reports a small-business average near $257 a month (range about $750 to over $14,000 a year), higher in California and New York. Check wage-and-hour sublimits.
• D&O: protects U.S. directors and officers (often Italian managers) personally; often bundled with EPLI and fiduciary cover once you sponsor a 401(k). Check whether the group's Italian program covers U.S. subsidiaries.
• General liability: third-party injury and property damage, required by most leases and many customer contracts.

Permanent establishment and transfer pricing

PE under the Italy-U.S. treaty

Under Article 5 of the treaty (in force since 2009), an Italian company is taxed in the U.S. on business profits only if it has a permanent establishment: a fixed place of business, or a dependent agent who habitually exercises authority to conclude contracts in its name. Owning a U.S. subsidiary does not by itself create a PE. Risks:

• A U.S. salesperson on an EOR or contract who negotiates and signs contracts for the S.p.A. can create a dependent agent PE, meaning U.S. tax, Form 1120-F and possibly branch profits tax.
• An office, or a home office the company pays for and requires, can be a fixed place of business.
• States are not bound by the treaty; several assert nexus from a single in-state employee.

Mitigate by employing U.S. staff in a subsidiary that contracts in its own name, or, while on an EOR, keeping contract approval and signature in Italy. See the tax treaty guide.

Transfer pricing basics

Every transaction between the subsidiary and the parent (goods for resale, services, management fees, loans, licenses) must be at arm's length under IRC section 482 and, in Italy, Article 110 TUIR. Sales subsidiaries are often set up as limited-risk distributors or service providers paid at cost plus a benchmarked markup. Sign an intercompany agreement before the subsidiary starts operating and keep contemporaneous documentation: it protects against the U.S. 20% and 40% penalties and, in Italy, qualifying documentation ("oneri documentali") protects against administrative penalties.

Annual filings: BOI and Form 5472

Corporate Transparency Act and BOI

FinCEN's interim final rule of March 26, 2025 exempted all U.S.-formed companies and U.S. persons from beneficial ownership reporting; a final rule effective August 14, 2026 made this permanent. Status as of September 2026:

• A U.S. subsidiary of an Italian company does not file.
• An Italian company registered as a branch in a U.S. state is a foreign reporting company and must file within 30 calendar days of its registration becoming effective, reporting its non-U.S. beneficial owners only.

Form 5472

A U.S. corporation at least 25% foreign-owned attaches Form 5472 to its Form 1120, reporting every transaction with related parties: capital contributions, loans, fees, purchases and sales. A foreign-owned single-member LLC must file too, with a pro forma Form 1120, even without income. The penalty is $25,000 per form per year, plus $25,000 for each further 30 days after an IRS notice.

Other recurring filings

• Federal: Form 1120 (April 15 for calendar-year companies, extendable), payroll forms, 1099-NEC for contractors, and Forms 1042/1042-S for certain payments to the parent, with treaty rates claimed on Form W-8BEN-E.
• State: annual reports and franchise taxes in each state of formation and qualification, income tax returns, quarterly SUI and withholding returns.

Timeline, budget and multi-state growth

Allow two to three months from decision to first payroll; bridge with an EOR if the candidate is ready sooner. Visa cases add their own timeline (see Immigration; Cygic works with partner immigration attorneys and does not provide visa services).

Illustrative budget

A New Jersey sales manager on a $120,000 base: employer Social Security and Medicare about $9,180; FUTA $42; NJ SUI about $1,250; employer health contribution often $8,000 or more; a 4% 401(k) match $4,800; workers' comp and EPLI share a few hundred to a few thousand dollars. Loaded cost is roughly 18% to 25% above base, before commission and recruiting. First-year entity costs (formation, agent, franchise tax, CPA, payroll software, insurance minimums, legal documents) typically add $10,000 to $25,000 depending on bespoke work. See Compensation and Benefits.

Every state is a new jurisdiction

Obligations follow where the employee sits. If your New York subsidiary hires a remote engineer in North Carolina, you must open North Carolina withholding and SUI accounts, report the hire there, extend workers' comp, follow its wage rules and usually qualify and file a North Carolina return. If the employee moves to Colorado, repeat everything there, including paid leave contributions. New York's "convenience of the employer" rule can also tax remote workers' wages in New York.

Practical guides

Frequently asked questions