Can You Hire Employees As An LLC?
If you have an LLC, you can definitely hire employees. In fact, there are a few different ways to do it. You can hire employees on a wage or salary basis, and you can also hire independent contractors on a contract basis. However, there are some things you need to know before you get started. But don’t worry – hiring new workers is not complicated! This blog will outline the basics of employee hiring and provide tips to make it as smooth as possible for both you and your new hires.
So, if you’re ready to grow your business by adding new individuals to your team, keep reading!
Can Every LLC Hire Employees?
A single person, couple, corporation, or partnership may own a limited liability company. LLCs set up with this entity structure avoid personal responsibility for company mistakes. This business structure protects LLC members from becoming personally liable for company liabilities.
As an LLC member (owner), the IRS sees you as self-employed when you file your own taxes. You enjoy pass-through taxation and pay self-employment taxes.
The LLC itself does not pay taxes. Instead, each member pays tax on their share of the profits. However, your employees will need to report taxes and pay taxes as employees.
Because there are so many kinds of LLCs, the way you hire employees is a bit different.
Sole Proprietorship or Disregarded Entity LLC
If you own an LLC as one person or as a disregarded entity (for tax purposes), you may hire employees of the LLC by paying them as W-2 employees with a wage or salary. You may also hire independent contractors.
If you are the only member, all the profit is yours, and the IRS taxes you on your personal tax return.
LLC Partnership (2 or More Members)
For multi-owners, you may hire employees of the LLC by paying them as W-2 employees with a wage or salary. You may also hire independent contractors.
Each member-owner pays tax on profits in relation to their percentage of ownership. For example, if you have a two-person LLC and one member owns 75% while the other owns 25%, then the one owning 75% pays 75% of the taxes on the LLC profits.
An LLC taxed as a corporation can also pay its employees as W-2 employees or hire independent contractors.
You receive a share of the company’s profits if you’re a member. You don’t receive a salary. As a business owner, your value increases when the company’s value grows. When an LLC company is a corporation, it files and pays taxes. Each member does not receive pass-through taxation and file self-employment taxes. Instead, you receive a K-1 from the company each year.
However, most LLC laws relating to basic rules change when it files taxes as corporation. As a corporation, you can hire an owner member as an employee!
The LLC then must pay the member/employee a reasonable, industry-standard salary. If you become an employee as a member of your LLC, you must pay tax on the income, and the LLC must withhold taxes for you.
Now that we’ve gone over the different types of LLCs and how they can hire employees, let’s dive into the specifics of wage vs. salary payments.
Wage Vs. Salary Payments
In North Carolina, you must pay all nonexempt hourly employees a minimum wage of $7.25 per hour. This is the current rate under state and federal labor laws.
If you have hourly employees paid by tips, the minimum wage is $2.13. However, the tips must bring the hourly wage up to $7.25. If the worker’s tips do not bring their hourly rate up to minimum wage, the business must offset the cost so that the employee makes at least $7.25 per hour. (1)
For salaried exempt employees, a business must pay a guaranteed salary of $684 per workweek ($35,568 per year). However, you may not have good candidates knocking down your door for a job at this rate!
“North Carolina ranks number 28 out of 50 states for salaries on ZipRecruiter. As of Oct 22, the average annual salary in North Carolina is $54,247. Just in case you need a simple salary calculator, that works out to be approximately $26.08 an hour. This is equivalent of $1,043 a week or $4,520 a month.” (2)
How to Set Up Payroll Taxes for Your Limited Liability Company
Federal: Pay Payroll Tax for Employees
For a business entity to hire employees, you’ll need to obtain an EIN or Federal Employer Identification Number from the U.S. Internal Revenue Service (IRS).
Next, you’ll need to verify an employee’s eligibility to work in the United States with the Social Security Administration. The employee’s eligibility determines whether you may immediately legally hire them according to Federal law. As an LLC owner, you may not hire them legally if the person has no eligibility.
However, you can advise workers that they are required to apply for a Social Security number and card. Suppose a worker applied for but still needs to receive a Social Security number. In that case, you should get the following information as complete as possible: The worker’s full name, address, date of birth, place of birth, father’s full name, mother’s full maiden name, gender, and the date they applied for a Social Security number. (3)
A salaried employee will pay appropriate taxes and have withdrawals for Medicare and Social Security based on the Federal W-4 Withholding IRS form they fill out when you set up your payroll.
North Carolina: Payroll Taxes for Employees
You’ll need to set up withholding of NC tax from employee payrolls using the NC W-4 Withholding Form. Once the employee fills out the form you hand them, you must use the information to withhold NC tax from their employee payroll checks.
You’ll use several legal documents for North Carolina taxes. Form NC-5 allows you to file withholding taxes monthly or quarterly as required. You can also amend your payroll at NC DOR.
And don’t worry if you mess something up! You can reconcile tax withholdings each year for each employee by filing Form NC-3.
You’ll also need to register any new employees at The NC Department of Health and Human Resources. And you’ll register with the Division of Employment Security to pay state unemployment insurance (UI) taxes.
How to Pay and Report for Independent Contractors
If you hire an independent contractor that you pay more than $600 in one year, you’ll need to file Form 1099-NEC to report nonemployee compensation.
However, contractors must still pay taxes on all of their earnings, regardless of whether you paid them less than $600 in any year.
Hiring employees as a sole owner business, multi-member LLC, or S corporation is not complicated. You’ll go through the steps above. However, when hiring an employee, talk with a local business attorney to find the best answers!
Put Our Experienced Business Attorneys to Work for You
At Hopler, Wilms, and Hanna, our business attorneys work with all sizes of LLCs and corporations around the state of North Carolina, solving issues related to:
- Unemployment Hearings
- Business Mergers and Acquisition
- Business Formations
- Business Investing
- Contracts, Commercial Leases, and Employment Agreements
- Business Partnerships
- We can also act as an “in-house” counsel for your business, focusing on your particular needs overall.
Every business has the potential to face legal challenges, which is why we’re here for you. Whether it’s providing assistance with formation or merger & acquisition paperwork, or researching precedents while taking into account applicable laws–our business legal team is there with you every step. Find out how we can help your business reach its full potential in North Carolina!