You are recruiting your first employee in the US: should you create an American company?
Your business is starting to take off in the United States. The first clients are arriving, and now you need someone on the ground: salesperson, customer success manager, operations manager…
This is a typical scenario where, as a French company, you have to decide whether to create an American company in order to recruit that first employee?
A French company can, in certain situations, directly employ someone who works in the United States. However, this initial recruitment may entail US obligations regarding payroll, taxation, and labor law. Depending on the employee's role and the chosen organizational structure, it may also alter the French company's tax exposure in the United States.
The real challenge, therefore, is to choose the right organization for your U.S. development, rather than automatically creating a subsidiary as soon as the first hire is made.
Key takeaway: Recruiting in the United States does not automatically mean creating a U.S. company. Three main solutions can be considered: hiring directly from France, using an Employer of Record (EOR), or recruiting through an American company.
The right choice depends in particular on the duration of the project, the number of recruitments planned, and the role of the employee in the U.S. market.
Can a French company directly employ an employee in the United States?
Yes, a foreign company can employ someone who works physically in the United States. However, the fact that the contract is signed by a French company does not allow that employee to continue being managed as if they were working in France.
Indeed, when an employee works in the United States, American rules may apply to their compensation and to the employer. The IRS indicates, in particular, that individuals employed in the United States by a foreign employer are generally subject to American Social Security and Medicare contributions, subject to applicable exceptions.
Affected employers may also have obligations regarding tax withholding, payroll reporting, and Federal Unemployment Tax (FUTA).
An Employer Identification Number (EIN) may become necessary, in particular, when the company has to declare employment-related taxes or provide tax documents to employees.
And the federal level is only part of the issue. Obligations related to payroll, unemployment, insurance, and labor law can also vary depending on the state in which the employee works. Therefore, employing someone in Miami, New York, or San Francisco does not necessarily entail the same constraints.
Option 1: directly employ the employee from the French company
On paper, it's the most direct solution: French company → employee based in the United States.
It can make sense when a company wants to test the market with a still limited presence.
But it requires precisely determining the employer's US obligations: registration, payroll, declarations, tax withholdings and obligations specific to the state concerned.
The employee's situation must also be considered. An American recruited locally and a French employee temporarily sent to the United States are not necessarily subject to the same mechanisms. France and the United States have a social security agreement designed to prevent, in certain situations, dual affiliation to the French and American systems.
Thus, for a permanent local recruitment in the United States, the logic will generally be different from that of a French employee sent there temporarily.
Option 2: Go through an Employer of Record
Another solution is to use an Employer of Record, often abbreviated as EOR. The EOR then becomes the employee's local legal employer and handles, among other things, payroll and some of the administrative obligations related to the employment. The French company, for its part, retains the operational relationship with the recruited individual.
For a French SME wanting to test the US market with its first employee, this solution can avoid immediately creating a local entity. However, it does involve additional costs and does not automatically resolve all tax issues.
The presence of a person working on a long-term basis in the United States to expand the French company’s business must always be evaluated based on what that person actually does there.
Option 3: Create a US company
When US expansion becomes structural, creating a local company can become more logical. This is particularly true when a company anticipates several recruitments, already has a significant volume of business in the United States, or wishes to build a truly local organization.
The US company then becomes the employer of the American employees and takes charge of its own payroll.
The question remains which US business structure to use. C-Corps, LLCs, and S-Corps do not function like French corporate forms. Their legal and tax treatment must be analyzed based on the shareholder structure, the tax residency of the executives, and the existing French structure.
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Note that the first employee can also become a tax issue for the French company.
This is probably the most important point to anticipate. The presence of an employee in the United States does not automatically create a permanent establishment in the US for the French company. However, the nature of their business activity does matter...
The tax treaty between France and the United States defines a permanent establishment as a fixed place of business through which the company carries out all or part of its business.
It also provides that a company may be considered to have a permanent establishment where a dependent agent has and habitually exercises the power to conclude contracts on behalf of the company.
An employee who primarily performs support or preparatory tasks does not necessarily present the same level of risk as an U.S. sales director who regularly negotiates and closes deals for the French company. The position, level of autonomy, commercial authority, premises used, and work organization must therefore be considered as a whole.
The first U.S. recruitment can therefore mark a much more significant change than simply an additional salary line.
"I'm simply going to take him on as a freelancer": beware of oversimplification...
A fourth option is to hire an independent contractor rather than hire an employee. This approach may be perfectly suited to certain assignments. However, simply stating “freelancer” in the contract is not enough for the person to be legally considered an independent contractor.
U.S. authorities focus primarily on the nature of the employment relationship: level of autonomy, work arrangements, integration into the company, nature of the work, etc.
If the individual is effectively working as an employee, the employment relationship may be reclassified, which could have social security and tax implications for the company. The contractor status must therefore reflect the actual nature of the working relationship and not simply be used to avoid setting up a U.S. payroll system.
Artificially converting an employee position into a service contract to avoid U.S. payroll obligations may therefore create an additional risk rather than solve the problem...
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Direct, EOR or U.S. company: how to choose?
For a French company, the decision depends primarily on the stage of development in the United States.
You are testing the market with just one person:
Direct employment or EOR can help avoid creating an additional structure too quickly, provided that the obligations generated in the United States are analyzed.
You are preparing several recruitment processes:
The creation of an U.S. entity becomes more relevant to study.
Your employee directly develops U.S. sales revenue:
Its role, powers and activities must also be analyzed from a fiscal perspective.
You already own a French company or holding company:
The future U.S. entity must be considered within the overall organization of the group, particularly with regard to financial flows, taxation and France-United States reporting.
The number of employees is clearly not the only criterion. A company with a single, highly autonomous salesperson in the United States may require more analysis than one with several employees performing different functions.
The first American recruitment is often the moment to truly structure US activity
Initially, many French companies invoice their first American clients directly from France. The situation remains relatively straightforward. Then comes the first local recruitment...
From this point on, it becomes necessary to coordinate US payroll, tax obligations, France-US transactions, and potentially a new entity with French accounting. This is often where the American project takes on a new scale.
At Blendy , an international accounting firm based in Paris, Miami and Montreal , we support French executives who are developing their business in the United States by looking at the organization as a whole: existing French structure, American presence, recruitment, taxation, accounting and reporting between the two countries.
Our team operates in France and the United States, with the same objective: to build an organization that remains coherent as the American business develops.
Are you preparing for your first recruitment in the United States?
The best time to review your France-US structure is generally before the contract is signed , rather than after the first US payroll.
Sources:
With Blendy, international CPA based in France, Canada and the USA, take advantage of digital accounting and tailor-made advice to accelerate your financial process and develop your business.
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