Can a Member Be an Employee of an Llc
The answer to "can an LLC take employees?" is yes!
In fact, an LLC can have as many employees as it wants, there is no limit to the number of employees a limited liability visitor can accept.
That beingness said, there are a few things to know most limited liability companies and their employees, which we are going to comprehend in this post.
Express Liability Companies are one of the most popular business concern structures because they provide several benefits to the owner(s) of the company.
The 2 master reasons that business organisation owners choose the limited liability structure are:
- The business owner is non liable for the company'south debts or liabilities and tin can choose their own direction construction.
- They qualify for pass-through taxation – meaning that profits are but taxed once.
To acquire more than about LLC'southward, visit out What is an LLC article here.
According to the IRS, the legal definition of an employee is, "anyone who performs services for yous is your employee if you lot can command what will be done and how information technology volition be done."
Furthermore, an employee is whatever individual who is hired for a wage or salary to perform said services.
Employees are not the same every bit independent contractors.
Independent contractors do not work directly for the company only are hired for a period of fourth dimension to perform a specific project or service under an agreed upon contract.
Independent contractors are themselves business owners while employees are not considering they work direct for a business organisation equally an employee.
Independent contractors are 1099 workers, meaning they receive a 1099 Form for tax purposes, while employees are W2 workers and receive a W2 Grade for tax purposes.
Knowing the difference between an independent contractor and an employee is important because that will make up one's mind if the hired worker is eligible for any company benefits such as health insurance too as worker'southward compensation.
To take that even further, this will determine if the LLC tin be held liable for any damages caused by the individual.
Express liability companies provide liability protection for the fellow member(s) of the LLC but this protection does non extend to the employees of the LLC.
In other words, if an employee causes damages effecting the LLC, the LLC member(due south) are protected under the limited liability protection, but the company and employee are non.
The LLC itself can be held liable for damages caused by an employee.
LLC members, according to the IRS, are considered self-employed and thus they have that limited liability protection for their personal assets.
While yes, as an LLC fellow member yous piece of work for the LLC, this does not automatically legally make yous an employee.
This is why the liability protection is valid for members simply and not employees.
So how exactly can an LLC hire employees?
Allow'due south talk over that next.
Hiring Employees for your LLC
In gild to rent employees, an LLC must take an Employer Identification Number (EIN), which is issued by the IRS.
The EIN number you receive from the IRS is going to be used when the LLC files its taxes, financials, payroll information, and any other documentation.
You volition as well need an EIN to open up a business depository financial institution business relationship.
Some states volition require that y'all besides register as an employer in addition to other LLC registration filings.
The employer classification will exist used for tax purposes but besides for whatsoever annual filing or compliance requirements in your state.
Once you have your EIN, you tin hire employees and set them up on payroll.
The IRS will require an LLC with employees to file returns and pay payroll taxation, but similar any other business entity.
LLC Taxed every bit an S Corporation
Sometimes LLC member(s) choose to be taxed every bit a corporation and thus change their business condition from an LLC to an Due south Corp.
This will require all member(southward) to receive a reasonable salary as employees.
If a member of an LLC decides to become an employee and take a salary, the salary will be sujest to federal withholding taxes rather than cocky-employment taxes.
This tin get a lilliputian tricky, but when done correctly, at that place can be some really dandy tax advantages.
Learn more nearly South Corporations and their tax advantages here.
Primal Takeaways
- LLCs tin can have an unlimited number of employees.
- The IRS defines an employee as "anyone who performs services for you is your employee if yous can control what will exist done and how information technology will be washed."
- Employees and Contained Contractors are non the aforementioned matter – Employees work directly for the LLC while Independent Contractors practise not.
- In lodge to rent employees, LLCs must first acquire an Employer Identification Number (EIN) from the IRS.
- While member(s) of the LLC are personally protected from damages caused by an employee, the LLC itself tin can be held liable for damages acquired by the employee
- LLC members who wish to exist employees can structure their LLC every bit an S Corporation.
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IRS.gov "Employee (Common-Law Employee)" Page 1 . September 9, 2021
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IRS.gov "Independent Contractor Defined" Page 1 . September 9, 2021
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IRS.gov "Limited Liability Company (LLC)" Folio i . September 9, 2021
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