Can LLCs Have Employees?

A limited liability company (LLC) is a business structure that, depending on various factors, may be treated as either a corporation, a partnership, or sole owner business. Owners of an LLC are called members, which can be corporations, individuals, and even other LLCs. 

 An LLC can have an unlimited number of employees. An employee is defined as any individual who is hired for wages or salary. There is a distinction between the employees, who work for the company, and the independent contractors, who may perform contracted work tasks for the company but are not among the company's employees.

Single-member limited liability corporations (SMLLCs), which are LLCs with only a single owner/member, have a few different rules for employment and taxation, primarily that the single-member owner must report, collect, and pay the employment taxes.

Understanding How LLCs Can Have Employees

Steps to Hiring an Employee

For LLCs to hire employees, they must first obtain an employer identification number from the U.S. Internal Revenue Service (IRS). This is required in order to report taxes and other documentation to the IRS. LLCs must keep records of employment taxes for at least four years.

Key Takeaways

  • A Limited Liability Company (LLC) is a business structure that may be treated as either a corporation, a partnership, or sole owner business. 
  • Owners of an LLC are called members, which can be corporations, individuals, and even other LLCs. 
  • For LLCs to hire employees, they must first obtain an employer identification number from the U.S. Internal Revenue Service (IRS), verify that employees are eligible to work in the United States, and collect and pay appropriate taxes.
  • LLCs can have employees, who work for the company, and independent contractors, who perform contracted work but are not company employees.
  • LLC members, or owners, are self-employed according to the IRS, but LLC employees are not, which requires filing of returns and payroll taxes.

Before hiring an employee, federal law requires the business to verify an employee's eligibility to work in the United States (IRS Form I-9), make sure the employee has a Social Security Number, and set up the collection and payment of the appropriate taxes. After hiring an employee, the business must report newly hired or rehired employees to its state of residence within 20 days.

Any business with employees is required to carry workers' compensation insurance. Certain posters notifying employees of their rights and their employers' responsibilities under labor laws must be posted in the workplace.

LLCs and Employees

LLCs are popular for the liability protection they provide to the owners of a company. In the event an employee action leads to liabilities for the company, these protections remain in place only for owners, not for employees.

Even though owners of the company are not personally liable for the actions of the employees, the LLC is liable. The LLC can be held liable for any damages employees cause.

LLC members, or owners, are self-employed according to the IRS. LLC employees are not. This requires the filing of returns and payroll taxes similar to every other business type.