For a French company, the first American hire is a bigger legal threshold than the first American sale. One signature opens three regimes at once: employer obligations, a benefits market without public cover, and the treaty risk of a permanent establishment.
A French company can sell into the United States for years without existing there in any legal sense: invoices leave from Paris, payments arrive in euros or dollars, and the American tax system sees, at most, a foreign seller. The first employee changes that in a single afternoon. Someone now works on American soil, for the company, under American employment law, and the question of where the company's profits are taxed stops being theoretical.
Three regimes open simultaneously at that signature. The employer regime: federal and state payroll taxes, withholding, registrations in the state where the employee lives. The benefits regime: in a country without universal public health cover, the employer is expected to supply what the French system supplies by law. And the treaty regime: an employee in the United States can create a permanent establishment for the French company, with the consequences we mapped in our permanent establishment risk map. Each of these regimes is manageable. Discovered after the fact, together, they are expensive.
Part I asks who the employer should be. Part II measures what an American employee actually costs, including the seconded French employee. Part III addresses the permanent establishment question raised by the remote worker and the salesperson. Part IV gives the decision grid and the sequence.
I. Who should the employer be?
A. Three architectures
The French company has three ways to put a person to work in the United States. It can employ the person directly, from France, with no American entity: the simplest contract and the most exposed structure, since the French company itself becomes an American employer, registers for payroll taxes in the employee's state, and carries alone any permanent establishment risk. It can first create an American subsidiary, which then becomes the employer: the corporate cost is higher, but the employment, payroll and tax footprint sit in a separate American entity, and the treaty provides that a subsidiary does not, by itself, make its parent a permanent establishment (Convention of 31 August 1994, art. 5, §7). Or it can use an employer of record, a provider that employs the person on paper, runs payroll and benefits, and invoices the French company: fast and administratively light, but a contractual solution to a payroll problem, which leaves the tax question of what the person actually does for the French company entirely open.
B. The independent contractor trap
The tempting fourth route is to call the person an independent contractor and invoice the relationship. It rarely survives scrutiny. For federal employment taxes, the IRS applies the common law test, weighing all evidence of behavioral control, financial control and the relationship of the parties, including the permanence of the relationship and the existence of employee-type benefits (IRS, Topic 762). A full-time person working only for the company, on its instructions, indefinitely, is an employee whatever the contract says. Several states go further. In California, the state Supreme Court adopted the so-called ABC test, which presumes every worker to be an employee and allows independent contractor status only if the hiring business proves three cumulative conditions: freedom from control, work outside the usual course of the hiring entity's business, and a customarily independent trade or business (Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018)). A French company's first salesperson fails condition B by definition, since selling the company's product is the company's usual course of business.
Misclassification costs more than the payroll taxes it avoids: back taxes, penalties, state wage claims, and, decisively for our subject, a factual record of exactly the control and integration that also supports a permanent establishment. The contractor route does not avoid either problem; it documents both.
II. What does an American employee actually cost?
A. Payroll: the federal layer and the state layer
The federal layer is uniform. Social Security tax is 6.2% for the employee and 6.2% for the employer on wages up to the annual wage base, 184,500 dollars for 2026, a figure the Social Security Administration revises each October; Medicare tax is 1.45% for each party, without cap. The federal unemployment tax is 6.0% on the first 7,000 dollars of each employee's wages, reduced by a credit of up to 5.4% for employers paying state unemployment tax on time, for a usual net rate of 0.6% (IRS, Topic 759). The employer withholds federal income tax on the basis of the employee's Form W-4, files quarterly and annual returns, and issues a Form W-2.
The state layer depends on where the employee lives and works, not on where the company is incorporated, the principle we developed in our analysis of the incorporation myth. The employer registers in that state for unemployment insurance and, where the state has an income tax, for withholding; some states add disability or paid leave contributions. A remote employee in a given state is, for the employer, a registration in that state, with the nexus consequences that registration implies.
B. Benefits: where the law is silent, the market speaks
The French reflex is to look for the legal minimum. On benefits, the American legal minimum for a small employer is strikingly thin: the federal obligation to offer health coverage applies only to applicable large employers, those with an average of at least 50 full-time employees, including full-time equivalents, in the preceding year (IRC, section 4980H). A company hiring its first American employee is far below that threshold. The market, however, is not. A qualified candidate expects a group health plan, often a retirement plan of the 401(k) type, and paid time off, and the cost of the health plan alone, for an employee with a family, routinely represents a five-figure annual sum. Employment itself is generally at will, which French managers find reassuring until they discover that state and federal anti-discrimination rules, and the documentation they require, make a badly handled termination as costly as a French dispute.
The practical consequence for the budget: the true cost of an American employee is the salary plus roughly the payroll taxes plus a benefits package the employer cannot legally be forced to offer and cannot commercially avoid offering. Pricing the hire on salary alone is the most common error in the first-year business plans we review.
C. The seconded French employee: two instruments, two questions
When the first person in the United States is a French employee sent from Paris, two separate instruments apply, because the tax treaty does not cover social security: among the American taxes it covers, it expressly excludes social security levies (Convention, art. 2, §1, b). Social security is governed by the separate France-United States social security agreement, in force since 1 July 1988, under which a worker sent by an employer to work temporarily in the other country remains subject only to the social security laws of the sending country, provided the assignment is expected to last no more than five years (SSA, POMS RS 02001.525). The employer obtains a certificate of coverage, which exempts the employee and the employer from American Social Security and Medicare taxes for the covered period.
Income tax follows the treaty's employment article. A resident of France working in the United States remains taxable only in France if three conditions are met cumulatively: presence not exceeding 183 days in any twelve-month period beginning or ending in the fiscal year, remuneration paid by an employer that is not a resident of the United States, and remuneration not borne by a permanent establishment the employer has there (Convention, art. 15, §2). The third condition links the employee's tax position to the company's: if the employee's activity creates a permanent establishment and the salary is charged to it, the exemption falls, and the employee becomes American taxable from the first day. The secondment and the permanent establishment analysis must therefore be done together, never by two different advisers.
III. Does the employee create a permanent establishment?
A. The remote worker: home office or fixed place of business?
Under the treaty, a permanent establishment is a fixed place of business through which an enterprise carries on all or part of its business (Convention, art. 5, §1). An employee working from home in the United States raises the question directly: is the home office a place of business of the French company? The analysis turns on facts the company controls. Is the home office at the company's disposal or merely the employee's private choice? Does the company require or reimburse it, list it as an address, receive clients there? Is the activity conducted there the company's core business, or preparatory and auxiliary work, which the treaty excludes from the definition (Convention, art. 5, §4, e)? A developer working remotely for a French software company, without customers, without authority and without a company-designated office, presents a defensible position. A country manager running the American market from the kitchen table does not.
B. The salesperson: dependent agent by habit
The second route does not require any place at all. The treaty treats the French company as having a permanent establishment in the United States where a person, other than an independent agent, acts on its behalf and has and habitually exercises an authority to conclude contracts in the name of the enterprise (Convention, art. 5, §5). The first American hire of a French company is very often precisely that person: a business developer whose purpose is to sign customers. Contract language reserving signature to Paris helps only if it reflects reality; a salesperson who negotiates every term and leaves Paris a formal signature is the case the dependent agent rule was written for. Note the asymmetry with recent international standards: the 1994 treaty predates the OECD's widening of the dependent agent concept, which makes the habitual conclusion of contracts the operative test here, but the facts that satisfy it are exactly the facts a commercial hire is meant to produce.
C. What a permanent establishment costs
If a permanent establishment exists, the profits attributable to it are taxable in the United States as if it were a distinct and independent enterprise (Convention, art. 7, §§1 and 2), on a federal return for foreign corporations, with the branch profits tax capped by the treaty at the 5% dividend rate, or excluded for a French company meeting its limitation on benefits tests (Convention, art. 10, §§8 and 9; art. 30), and state taxes following the same activity. On the French side, the consequence is symmetrical: corporate tax applies only to profits from enterprises operated in France or allocated to France by a treaty (CGI, art. 209, I), so the profits of a genuine American permanent establishment leave the French base. The risk is therefore not double taxation in principle; it is the cost and the disorder of discovering a taxable presence after several years of unfiled returns, with profit attribution reconstructed under audit rather than designed in advance.
IV. The decision grid and the sequence
A. The grid by hiring profile
Our grid turns on what the first person will do. A commercial hire with negotiating authority, the most common case: the subsidiary comes before the employment contract, without exception, because the employee's role creates the dependent agent risk by design and only a subsidiary isolates it, as we set out in our founder's roadmap. A technical or support profile with no commercial role: an employer of record is a defensible transitional solution for six to twelve months, provided the contract and the reality forbid any conclusion of contracts and any client-facing authority, and provided the date of the switch to a subsidiary is fixed from the start. A French employee seconded for a defined mission: the certificate of coverage, the 183-day calendar and the permanent establishment analysis are prepared together before departure. And in every case, the independent contractor label is excluded for a full-time, integrated person: it combines the requalification risk and the permanent establishment risk without solving either.
B. The ninety days before the signature
The sequence we apply runs backwards from the signature date. Ninety days out: define the role in writing, including what the person may and may not sign, and decide the architecture. Sixty days out: incorporate the subsidiary if the grid requires it, open its bank account, obtain its federal employer identification number, and register in the employee's state for payroll and unemployment taxes. Thirty days out: select payroll and benefits providers, budget the full employment cost, put the intercompany agreement in place between the French company and the subsidiary, and for a seconded employee, request the certificate of coverage. At signature: an employment contract consistent with the role defined ninety days earlier. The order matters more than the speed: every step taken after the hire is a correction, and corrections are what auditors find.
Conclusion
The first American employee turns a French exporter into an American employer and potentially into an American taxpayer. The payroll layer, federal and state, is mechanical once registered. The benefits layer is legally light for a small employer and commercially heavy, and must be priced from the start. The seconded employee moves between two instruments, the social security agreement and the tax treaty, which only work if read together. And the permanent establishment question, raised by the remote worker and above all by the salesperson, is answered by the facts the company creates.
Our position is therefore simple to state: decide the role before the person, the structure before the contract, and the permanent establishment analysis before the first customer meeting. A commercial hire belongs to a subsidiary; a technical profile can transit through an employer of record for a defined period; a contractor label is never a strategy. The first employee is the moment a French company chooses whether its American presence will be designed or discovered.
Frequently asked questions
Can my French company hire someone in the United States without creating an American entity?
Yes, but the French company then becomes an American employer itself: it registers for payroll and unemployment taxes in the employee's state, withholds federal income tax, and carries alone the risk that the employee's activity creates a permanent establishment. For a technical profile with no commercial authority, this or an employer of record can be a defensible transition. For a salesperson who negotiates and closes deals, we recommend creating a subsidiary before the hire.
Why not simply engage the person as an independent contractor?
Because a full-time person working only for you, on your instructions, indefinitely, is an employee under the IRS common law test, and several states apply even stricter tests, such as California's ABC test, under which a salesperson selling your product cannot be a contractor. Misclassification triggers back taxes and penalties, and the evidence of control it produces also supports a finding of permanent establishment. It solves neither problem and documents both.
We are sending a French employee to the United States. Will we pay social contributions twice?
Not if you prepare it. The France-United States social security agreement keeps a seconded employee under the French system alone for up to five years, provided the employer obtains a certificate of coverage. Income tax is a separate question governed by the tax treaty: the employee stays taxable only in France if present no more than 183 days in any twelve-month period, paid by a non-American employer, and not charged to an American permanent establishment of that employer.
Does an employee working from home in the United States create a permanent establishment?
It depends on the facts. A home office may be a fixed place of business of the company if it is at the company's disposal and used for its core business; a remote developer with no customers or authority usually presents a defensible position. The higher risk comes from authority: an employee who habitually concludes contracts in the company's name creates a permanent establishment under the treaty even without any office.