United States — Statutory Benefits & Leave

The United States is the only OECD country without a national paid leave policy. An employer hiring its first US employee must understand that federal law imposes wage and overtime minimums but does not require paid vacation, paid sick leave, or paid parental leave. This contrasts sharply with nearly every other jurisdiction in the global-employment vertical, where statutory paid leave is a baseline obligation.

Fair Labor Standards Act (FLSA) – wage and overtime only, no leave mandate. The FLSA establishes minimum wage ($7.25 per hour effective July 24, 2009), overtime pay (time-and-a-half for hours worked over 40 in a workweek), recordkeeping, and child labor standards. It does not require payment for time not worked, including vacations, sick leave, or holidays. Covered nonexempt employees must receive overtime pay at a rate not less than one and one-half times the regular rate of pay for hours worked over 40 in a workweek. The FLSA applies to enterprises with annual gross volume of sales of at least $500,000, or engaged in interstate commerce on an individual-employee basis, and covers private-sector employers, state and local government employers, and federal employees.

Many states have higher minimum wage rates; when an employee is subject to both state and federal minimum wage laws, the employee is entitled to the higher rate. The federal framework is a floor, not a ceiling.

No federal paid leave of any kind. There are no federal laws requiring paid time off. Paid sick leave, paid family leave, paid vacation, and paid parental leave are matters of agreement between employer and employee (or the employee's representative, such as a union), not federal statutory mandates. According to the Bureau of Labor Statistics National Compensation Survey, as of March 2023, only 27% of private-sector workers in the United States had access to paid family leave through their employer.

Family and Medical Leave Act (FMLA) – unpaid leave for eligible employees. The FMLA provides certain employees with up to 12 weeks of unpaid, job-protected leave per year for qualifying family and medical reasons, including the birth or adoption of a child, the employee's own serious health condition, or caring for a spouse, child, or parent with a serious health condition. The FMLA also requires continuation of group health benefits during the leave on the same terms as if the employee had continued to work.

Employer coverage threshold: FMLA applies to private-sector employers who employ 50 or more employees in 20 or more workweeks in the current or previous calendar year, all public agencies (federal, state, and local government employers, regardless of employee count), and all local educational agencies (public and private elementary and secondary schools, regardless of employee count). Employers with fewer than 50 employees have no FMLA obligation.

Employee eligibility: To be eligible for FMLA leave, an employee must have (1) worked for the employer for at least 12 months, (2) worked at least 1,250 hours over the past 12 months, and (3) work at a location where the employer has 50 or more employees within 75 miles. An employee who does not meet all three criteria has no FMLA entitlement.

The 12 weeks of FMLA leave are unpaid unless the employee substitutes accrued paid leave (if the employer offers it) or the employer voluntarily pays during FMLA leave. There is no federal requirement that the employer pay wages during FMLA leave.

State paid-leave programs overlay the federal floor. Thirteen states and the District of Columbia have enacted paid family and medical leave programs that provide wage replacement during leave (including California, New York, Washington, Massachusetts, Connecticut, and New Jersey). These state programs are employee-facing obligations independent of the federal FMLA; an employer with operations in those states must comply with the state program in addition to (not instead of) federal FLSA and FMLA rules. See the individual state guides in the Employment vertical for details on state wage-and-hour and leave requirements.

Cross-border employer implications. A non-US employer hiring a US-based employee (whether directly or through an employer of record) should expect no statutory entitlement to paid leave at the federal level. If the company's home-country employment model assumes, for example, 20 days of paid annual leave and statutory sick pay, those benefits will need to be provided contractually (as part of the offer letter or employee handbook) rather than by operation of US federal law. The absence of a federal paid-leave floor is the single most important distinction between the US and other jurisdictions in this vertical.

Source: Fair Labor Standards Act, 29 U.S.C. § 201 et seq. Source: FLSA Fact Sheet #14: Coverage Source: DOL: FLSA does not require payment for time not worked Source: DOL: No federal laws regarding paid time off Source: Family and Medical Leave Act, 29 U.S.C. § 2601 et seq. Source: FMLA Fact Sheet #28 Source: DOL: Currently, there are no federal legal requirements for paid sick leave

A foreign employer hiring its first US-based employee must understand that the United States imposes mandatory employer-side payroll taxes for Social Security and Medicare under the Federal Insurance Contributions Act (FICA). Unlike most other employment-related costs in the United States, FICA is not optional, cannot be contracted around, and applies to nearly every employment relationship. The employer both withholds employee-side FICA from wages and pays a matching employer contribution directly.

Statutory framework and dual obligation. FICA imposes two distinct taxes, codified at 26 U.S.C. §§ 3101 (employee tax) and 3111 (employer tax). Section 3101 imposes a tax on the income of every individual equal to a percentage of wages received; section 3111 imposes an excise tax on every employer with respect to wages paid. The employer is required by statute to withhold the employee-side tax from wages when paid and to remit both the withheld employee portion and the employer's own matching contribution to the Internal Revenue Service.

2026 tax rates. For wages paid in 2026, the combined employee-employer FICA tax rate is 15.3 percent, split equally between employee and employer (7.65 percent each). The 15.3 percent breaks down into:

• 12.4 percent for Social Security (Old-Age, Survivors, and Disability Insurance, or OASDI): 6.2 percent withheld from the employee's wages and 6.2 percent paid by the employer.
• 2.9 percent for Medicare (Hospital Insurance, or HI): 1.45 percent withheld from the employee and 1.45 percent paid by the employer.

These rates are set by statute (26 U.S.C. § 3101(a) and (b) for employees; § 3111(a) and (b) for employers) and have been in effect since 1990 for Social Security and 1986 for Medicare.

Social Security wage base ceiling. Only the Social Security component (12.4 percent combined) is subject to a wage base limit. For calendar year 2026, that limit is $184,500. Once an employee has earned $184,500 in wages from a single employer during 2026, the employer stops withholding the 6.2 percent Social Security tax and stops paying the 6.2 percent employer-side Social Security tax on any additional wages paid to that employee for the remainder of the year. The maximum Social Security tax withheld from an employee in 2026 is therefore $11,439 (6.2% × $184,500), and the maximum employer-side Social Security tax is likewise $11,439. The Social Security Administration adjusts the wage base annually to reflect increases in average wages.

No Medicare wage cap; Additional Medicare Tax above $200,000. The Medicare component (2.9 percent combined) has no wage base limit—it applies to all wages, no matter how high. In addition, employees (but not employers) pay an Additional Medicare Tax of 0.9 percent on wages in excess of $200,000 in a calendar year (the threshold is $250,000 for married individuals filing jointly and $125,000 for married individuals filing separately). Employers are required to begin withholding this 0.9 percent Additional Medicare Tax in the pay period in which they pay wages exceeding $200,000 to an employee and to continue withholding it for the remainder of the calendar year. There is no employer match for the Additional Medicare Tax; it is imposed solely on the employee under 26 U.S.C. § 3101(b)(2).

Cross-border employer implications. A non-US company establishing US payroll for the first time should expect a 15.3 percent total payroll-tax cost (employer's 7.65 percent share) on top of gross wages, subject to the Social Security wage cap. This is in addition to—not a substitute for—federal and state income tax withholding, state unemployment insurance, and any applicable local payroll taxes. FICA applies regardless of the employee's immigration status or work-authorization category; even employees on temporary work visas (H-1B, L-1, E-2, etc.) are generally subject to FICA unless they fall within a narrow treaty-based exemption (students and scholars on F-1 or J-1 visas have a limited exemption, and some countries have totalization agreements that may exempt certain posted workers from US Social Security tax).

The employer must register for a federal Employer Identification Number (EIN), enroll in the Electronic Federal Tax Payment System (EFTPS), and file quarterly Form 941 (Employer's Quarterly Federal Tax Return) reporting wages paid and FICA taxes withheld and owed. Employers with annual payroll tax liability below $2,500 may pay when filing; larger employers must deposit taxes on a semi-weekly or monthly schedule. Failure to withhold or remit FICA subjects the employer to penalties, interest, and—in cases of willful failure—personal liability for responsible officers under the trust-fund recovery penalty (26 U.S.C. § 6672).

Source: 26 U.S.C. § 3101 (Employee FICA tax rate) Source: 26 U.S.C. § 3111 (Employer FICA tax rate) Source: IRS Topic No. 751: Social Security and Medicare Withholding Rates Source: SSA: 2026 Social Security Wage Base ($184,500) Source: SSA: FICA & SECA Tax Rates (statutory authority)

A foreign employer hiring a US-based employee must understand that in addition to FICA, federal law imposes a separate federal unemployment tax (FUTA) that is entirely employer-borne—the employer pays FUTA from its own funds and may not withhold or deduct any portion of the tax from employee wages. FUTA is the third pillar of mandatory US payroll taxes and funds the federal-state unemployment insurance system that provides benefits to eligible unemployed workers.

Statutory rate and wage base. The Federal Unemployment Tax Act imposes an excise tax on every employer equal to 6.0 percent of the first $7,000 of wages paid to each employee during the calendar year. The tax applies only to the first $7,000 of wages per employee; once an employee has earned $7,000 in a calendar year, the employer stops paying FUTA on any additional wages paid to that employee for the remainder of the year. The maximum FUTA tax per employee is therefore $420 per year (6.0% × $7,000), though the effective tax after state credits is substantially lower.

The statutory 6.0 percent rate and $7,000 wage base are codified at 26 U.S.C. § 3301. The $7,000 wage base has not been adjusted since it was last increased by Congress and is fixed by statute; it does not index annually.

State unemployment tax credit reduces effective FUTA rate to 0.6 percent. Employers who pay required state unemployment insurance contributions on time may claim a credit of up to 5.4 percent against the 6.0 percent FUTA tax, reducing the effective federal tax rate to 0.6 percent. To receive the full 5.4 percent credit for wages paid in a given calendar year, the employer must pay all required contributions to the state unemployment fund by the due date of the employer's federal Form 940 for that year (ordinarily January 31 of the following year, or February 10 if all FUTA tax was deposited when due). Employers who pay state unemployment taxes after that deadline receive a reduced credit of 90 percent of the amount that would otherwise have been allowable.

The state unemployment tax credit is authorized by 26 U.S.C. § 3302. Most US employers pay state unemployment insurance taxes at rates that vary by state and by the employer's experience rating; state rates typically range from less than 1 percent to over 5 percent of wages, applied to state wage bases that range from $7,000 to over $50,000 depending on the state. Because the FUTA credit is capped at 5.4 percent regardless of how much the employer actually pays to the state, the effective FUTA cost is 0.6 percent of the first $7,000 of wages per employee in the overwhelming majority of cases. For a single employee earning $50,000 per year, the employer's FUTA obligation would therefore be $42 per year (0.6% × $7,000).

Credit reduction states. If a state has borrowed money from the federal government to pay unemployment benefits and has not repaid the loan by November 10 of the second consecutive year the loan is outstanding, employers in that state face a FUTA credit reduction—the 5.4 percent credit is reduced, increasing the employer's net FUTA tax. The reduction is 0.3 percent for the first year the state is a credit reduction state, an additional 0.3 percent for the second year, and an additional 0.3 percent for each year thereafter until the state's loan is repaid. The Department of Labor announces credit reduction states each year. Employers who pay wages in a credit reduction state must calculate and pay the additional FUTA tax using Schedule A (Form 940).

Employer coverage threshold. An employer is subject to FUTA if (1) it paid wages of $1,500 or more to employees in any calendar quarter during the current or preceding calendar year, or (2) it had one or more employees for at least some part of a day in any 20 or more different weeks in the current or preceding calendar year. Nearly every employer with regular employees meets one or both of these thresholds and therefore owes FUTA.

No employee withholding; employer pays from own funds. Unlike FICA, FUTA is imposed solely on the employer. Federal law explicitly prohibits the employer from collecting or deducting the FUTA tax from employee wages. The employer must pay FUTA from its own funds, in addition to gross wages and the employer's share of FICA.

Reporting and deposit. Employers report FUTA on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, filed annually by January 31 of the following year (or February 10 if all FUTA tax was deposited when due). Employers whose FUTA tax liability for a quarter exceeds $500 must deposit the tax electronically by the last day of the month following the end of the quarter; if the cumulative liability for the year is $500 or less, the employer may pay the full amount with the Form 940 filing.

Cross-border employer implications. A non-US company establishing US payroll should budget for a 0.6 percent federal unemployment tax (in addition to the 7.65 percent employer-side FICA and separate state unemployment insurance contributions, which vary by state). The combined federal and state unemployment tax cost is typically 1 to 3 percent of total wages, depending on the state and the employer's experience rating. Unlike FICA, FUTA applies only to the first $7,000 of wages per employee; for a highly paid employee, the employer's FUTA obligation of $42 per year is a de minimis cost, but the employer must register, track quarterly liability, and file the annual return regardless of the dollar amount.

Source: 26 U.S.C. § 3301 (Rate of tax) Source: 26 U.S.C. § 3302 (Credits against tax) Source: IRS Topic No. 759: Form 940 – FUTA Tax Return filing and deposit requirements Source: IRS: FUTA credit reduction Source: IRS Publication 926 (2026), Household Employer's Tax Guide (FUTA employer-only rule) Source: DOL: Federal Unemployment Tax