An EOR in the US legally employs a worker through its own American entity on behalf of a company that either has no US entity at all, most often a foreign business hiring its first American staff, or does not want to register as an employer in a new state. The EOR runs payroll, withholds and remits federal and state employment taxes, provides workers' compensation cover and administers benefits, while the client directs the work. The US market has its own vocabulary here, and the differences between EOR, PEO and CPEO decide who is liable for the taxes. Nothing on this page is legal or tax advice; the statutes and your agreements control.
The tax stack a US EOR runs
The IRS requires employers to withhold federal income tax from wages, to withhold Social Security and Medicare taxes and pay the employer share of both, and to withhold the 0.9% Additional Medicare tax on an employee's wages above $200,000 in a calendar year, a tax with no employer match. Federal unemployment tax (FUTA) is reported and paid by the employer alone; employees never fund it. On top of the federal layer sit state income tax withholding, state unemployment insurance and workers' compensation, all of which vary by state and are precisely the registrations a foreign company avoids by using an EOR. Current rates and wage bases move annually and live in IRS Publication 15, which is why a provider should quote against the current year, not a cached table.
EOR versus PEO versus CPEO
A US PEO co-employs workers who remain employed by your own US entity, so it requires you to have one; an EOR is the sole employer and does not. The certified PEO, or CPEO, is a distinct IRS status created by a voluntary certification program: a CPEO takes on liability for federal employment taxes on wages it pays to worksite employees under its contracts, must maintain a bond, and appears on public IRS listings. Certification is a compliance posture, not an IRS endorsement of quality, and the IRS notes that if a CPEO contract terminates, the customer can become liable for employment taxes on payments going forward from the termination date. For a foreign buyer with no US entity, the EOR model is usually the only one of the three that fits.
Classification is the risk that survives the EOR
The alternative many foreign companies reach for first, paying US workers as independent contractors, runs into the IRS common law test: behavioral control, financial control and the type of relationship, weighed together with no single deciding factor. A full-time worker under your direction, paid a salary equivalent, using your tools and integral to your business, looks like an employee under that test regardless of the contract's label, and an employer that misclassifies without a reasonable basis can be held liable for employment taxes for that worker. Misclassified workers can also file Form 8919 to report their share of uncollected Social Security and Medicare taxes, which surfaces the arrangement to the IRS. An EOR exists precisely so the person can be a properly classified W-2 employee without you registering as a US employer.
What to check in a US EOR provider
Ask which entity will be the employer of record on the Form W-2 and in which states the provider is registered for unemployment insurance and withholding, because coverage must match where your hire actually works, not where the provider is headquartered. Remote US employees trigger obligations in their state of residence. Confirm workers' compensation cover and benefits eligibility, since health cover is a hiring-market expectation in the US even where not mandated. If the provider markets a CPEO credential, check the IRS public listings, which are updated quarterly and also record suspensions and revocations. And get the fee model in writing: flat per-employee monthly fees are the US EOR norm, with benefits costs passed through at documented rates.
Questions people ask about eor us
Do I need a US entity to use an EOR in the US?
No, and that is the point. The EOR employs through its own US entity and handles the federal and state registrations. A PEO, by contrast, co-employs alongside your own entity and so requires you to have one.
What employment taxes apply to a US employee?
Federal income tax withholding, Social Security and Medicare taxes with an employer share, the employee-only 0.9% Additional Medicare tax on wages over $200,000, and employer-only FUTA, plus state withholding, state unemployment insurance and workers' compensation depending on the state.
What is a certified PEO?
A PEO the IRS has certified under its voluntary program. A CPEO is liable for federal employment taxes on wages it pays to worksite employees under its contracts, maintains a bond, and appears on the IRS's quarterly public listings; certification is not an IRS endorsement.
Can I just engage US workers as contractors instead?
Only if the relationship genuinely is independent under the IRS common law test of behavioral control, financial control and relationship type. Misclassification can leave the payer liable for employment taxes, and workers can report uncollected taxes on Form 8919.