...
Spread the love

Can an LLC Be an Employee of Another Company?

Max Smith

Reading Time: 4 minutes

When you own an LLC but want to indulge with another LLC, a question may arise: “Can an LLC be an employee of another company?” The straight answer is NO!!

However, the LLC member can be an employee on its own or another LLC. It may increase work pressure and cause tax complications. But yes, you may enjoy some benefits and more earnings. 

In this article, you will explore the possibility of employment for LLC members and its consequences. So let’s go!

Yes! If you are an LLC member, you can also be employed in another LLC. Is it confusing you? Let’s clear it out!

When you form an LLC, there’s an operating agreement to describe laws related to the LLC and its member’s facilities. If your LLC does not permit you to become an employee of another LLC, you cannot be an employee. 

Again, the same thing happens with the employment agreement. If you find out that you have to sign an employment agreement that contains the rule that you cannot have LLC ownership, then sorry, you are not eligible to become an employee.

Surely, if the LLC or employee agreement allows you to own an LLC and be a member of a different LLC, then you have no hindrances!!

Lastly, whether you are an employee at your own LLC or another, things go all the same except for some differences. It influences your employment status and taxation.

Can I Be an Employee of My LLC?

Yes, but employing yourself is not possible in every LLC business structure. So, the answer is both yes and no. Actually, the answer depends on your LLC type

The types of LLCs and their employment eligibility are given below.

Single-member LLC

If your LLC is a single-member LLC, then you are all in one in your business. It is simply taking money from one pocket and putting it in another, and it will have no tax impact. 

Multimember LLC

It is also inconsequential in a multimember LLC. Each member receives their share of the profits and pays their income taxes.

Corporation

You can hire yourself when the LLC is considered a corporation for tax purposes. Unlike a sole proprietorship, you can have an employment contract with your corporation.

Employment Agreement

Being an employee of your LLC risks crossing the separation line between ownership and employment. That’s why you may sign an employment agreement. It will contain your salary, responsibilities, and other things in a professional way. Lastly, there must be a situation in favor of the LLC to employ an employee.

3 Ways to Become an Employee

In most cases, it will be a practical solution, as corporation-paid wages will reduce taxable income. For this, you have three alternative methods to be classified as an employee:

  • Employee Leasing Company: A separate employee leasing company leases workers with equity interests in the LLC. That agency will become a C corporation. 
  • Separate S Corporation: You can hold the membership interests of service-providing LLC members through an S corporation. It should be 100% owned by the member.
  • Tiered LLC Structure: In this scenario, a member is identified as a member of a separate LLC. Here, the investment LLC has a membership interest in the LLC instead of the individuals. 

Taxation Complications: LLC and W2 Income

You can choose an S corporation to make yourself an employee of your LLC. So you can pay yourself on W-2 income. It will help if you pay taxes on your wages. The LLC files a W-2 form and shows it to the IRS for payments and taxation. 

As a result, your LLC may pay taxes twice. It’s ultimately a double tax. But there’s an advantage for you. 

Usually, as an employee of an LLC, you only pay FICA, Medicare, and Social Security taxes. It’s called a self-employment tax. It’s based only on your salary rather than on business profits. It’s a tax savings of nearly 15% on your income. 

One more thing, you may also face tax complications if you work on a contract basis. In that case, why don’t you read the article about LLC W2 or 1099: Tax Implications?

Furthermore, there are 2 crucial factors affecting IRS taxation. They are:

  • Get an EIN (Employer Identification Number) from the USA’s IRS (Internal Revenue Service).
  • Federal law requires the verification of the employee’s eligibility. Also, the employee must have a Social Security number.

Conclusion

Although the answer to the question, “Can an LLC be an employee of another company?” is no, you can still become an employee of another company. 

You should consult an expert service provider to help with the employment agreement and payment status. Otherwise, you may get into a complicated situation.

Frequently Asked Questions

Can my employer pay me through my LLC?

Yes! Your employer can pay you through your LLC. There are various ways to pay you, like a draw, profit distribution, and monthly wages. But if you are an employee of another LLC, then your employer cannot pay you directly through your LLC. But the employer can agree and pay your LLC. So you can draw your payment from your LLC or pay yourself on the W2 Form.

Can I own a business and work for another company?

The answer depends on your employment contract. Give it a close look and see if there’s any rule regarding forming your business. If your employment agreement does not stop you, you can run a business while working for another company.

Can an LLC owner be a W2 employee?

Yes, but only for an S corp. LLC. Usually, default LLC owners cannot pay themselves as W2 employees. But once your LLC becomes an S corporation, it can pay its members as a W2 employee.

Max Smith - LLC Formation

He is a seasoned entrepreneur and legal expert at LLC Formation Hub. With a stellar track record in both business and law, Max simplifies the complexities of LLCs. His practical insights, featured on LLC Formation Hub, empower entrepreneurs across the USA. Max merges business finesse with legal acuity to guide businesses toward success.


Spread the love
Scroll to Top
Seraphinite AcceleratorOptimized by Seraphinite Accelerator
Turns on site high speed to be attractive for people and search engines.