Yes, an LLC can have employees. Every state treats a limited liability company as a separate legal entity that can hire staff, and there is no federal or state cap on how many people it can put on payroll. The practical question is what you have to do once you decide to hire: get an Employer Identification Number, collect the right paperwork from each new worker, register with your state, carry workers’ compensation insurance, and start withholding and depositing payroll taxes on a schedule the IRS sets.
Does the Owner Count as an Employee?
By default, no. The IRS treats a single-member LLC as a disregarded entity, so the owner reports business income on Schedule C and pays self-employment tax on net earnings.1Internal Revenue Service. Single Member Limited Liability Companies A multi-member LLC defaults to partnership treatment, with each member taking a distributive share of profits and paying self-employment tax through Schedule SE.2Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) Members are not on payroll and do not receive a W-2.
That flips if the LLC elects corporate tax treatment. Filing Form 8832 makes the LLC a C-Corporation for tax purposes, and Form 2553 makes it an S-Corporation.3Internal Revenue Service. Limited Liability Company (LLC) Under either election, owners who work in the business must be treated as employees, drawing a W-2 paycheck with federal income tax and FICA withheld. For S-Corp LLCs, the IRS specifically expects shareholder-employees to pay themselves a reasonable salary before taking additional money out as distributions.4Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers
Employee or Independent Contractor?
Decide this before you hire. Misclassifying a worker shifts tax responsibility and exposes the LLC to back taxes and penalties. The IRS looks at three categories of evidence rather than any single test:5Internal Revenue Service. Independent Contractor (Self-Employed) or Employee?
- Behavioral control. The more you dictate how, when, and where the work happens, the more the relationship looks like employment.
- Financial control. Contractors usually invest in their own tools, can profit or lose on a job, and are not reimbursed for routine expenses.
- Type of relationship. Ongoing work that is integral to the business, especially with benefits and no defined end date, points toward employment.
No single factor decides it. If you engage independent contractors instead, you issue Form 1099-NEC rather than a W-2. Starting with the 2026 tax year, the reporting threshold for nonemployee compensation rises from $600 to $2,000, with inflation adjustments beginning in 2027.6Internal Revenue Service. Publication 1099 General Instructions for Certain Information Returns Copies to the contractor and to the IRS are both due January 31.
Setup Steps Before the First Paycheck
Get an EIN
If the LLC doesn’t already have an Employer Identification Number, apply on Form SS-4. The online application at irs.gov issues the number immediately.7Internal Revenue Service. About Form SS-4, Application for Employer Identification Number (EIN) Check the “Hired employees” box on line 10 so the account is flagged for employment tax reporting.8Internal Revenue Service. Form SS-4 (Rev. December 2025) – Application for Employer Identification Number Single-member LLCs that already have an EIN for banking should confirm the account is set up for payroll.
Collect W-4 and I-9 Paperwork
Each new hire completes Form W-4 so you know how much federal income tax to withhold; the IRS says the form should be effective with the first wage payment.9Internal Revenue Service. Hiring Employees You also need the employee’s Social Security number for the year-end W-2.
Form I-9 verifies work authorization. The employee fills out Section 1 on or before the first day of work, and you review the identity and work-authorization documents and complete Section 2 within three business days of the hire date.10E-Verify. 2.1 Form I-9 and E-Verify Keep the I-9 for three years from the hire date or one year after employment ends, whichever is later.
Report the New Hire to Your State
Federal law requires reporting every new and rehired employee to the state new-hire directory within 20 days of the start date. Some states impose shorter deadlines. The seven data elements are the employee’s name, address, and Social Security number; the date of hire; and the company’s name, address, and EIN.11The Administration for Children and Families. New Hire Reporting
Post the Required Notices
Once you have employees, OSHA requires the federal “Job Safety and Health: It’s the Law” poster in a visible location, at least 8½ by 14 inches with type no smaller than 10 point.12Occupational Safety and Health Administration. Posting of Notice; Availability of the Act, Regulations and Applicable Standards States with their own OSHA-approved plans may require a separate poster. Most employers also have to display federal minimum wage, FMLA (if applicable), and equal employment opportunity notices.
Line Up Workers’ Compensation Insurance
Nearly every state requires workers’ comp coverage once an employer has at least one employee, though a few states set higher thresholds or carve out certain industries. Penalties for going bare can include daily fines, criminal charges, and personal liability for the owner. Because requirements and premiums depend on state and industry, contact your state workers’ compensation board before the first hire’s start date.
Wage and Hour Rules
The Fair Labor Standards Act applies to your LLC the same as any other employer. Federal minimum wage is $7.25 per hour; most states set higher minimums, and where they do, the state rate governs.13U.S. Department of Labor. State Minimum Wage Laws Non-exempt employees who work more than 40 hours in a workweek must receive at least one-and-a-half times their regular rate in overtime, calculated per workweek; averaging across weeks isn’t allowed.14U.S. Department of Labor. Overtime Pay
Certain salaried executive, administrative, and professional employees can be exempt from overtime. The current salary threshold sits at $684 per week, or $35,568 per year; employees earning less than that get overtime regardless of job title.15U.S. Department of Labor. Earnings Thresholds for the Executive, Administrative, and Professional Exemption
Payroll Taxes the LLC Owes
Social Security and Medicare
Every paycheck triggers FICA. You withhold 6.2% for Social Security and 1.45% for Medicare from the employee’s wages, and you match both as the employer, for a combined rate of 15.3% split evenly.16Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates For 2026, Social Security tax applies only to the first $184,500 in wages per employee; Medicare has no wage cap.17Social Security Administration. Contribution and Benefit Base
Federal Unemployment Tax
You also owe FUTA on the first $7,000 of wages you pay each employee during the calendar year.18Internal Revenue Service. Instructions for Form 940 (2025) The gross rate is 6.0%, but employers who pay state unemployment tax on time get a credit of up to 5.4%, bringing the effective federal rate to 0.6%, or a maximum of $42 per employee per year.19Internal Revenue Service. Publication 926 (2026)
Deposits and Personal Exposure
You remit withheld income tax and FICA through the Electronic Federal Tax Payment System. Deposits run either monthly or semi-weekly depending on the size of your liability during an IRS-assigned lookback period. Late deposits carry escalating penalties: 2% of the unpaid amount if 1 to 5 days late, 5% if 6 to 15 days late, 10% if more than 15 days late, and 15% after an IRS notice or demand for immediate payment.20Internal Revenue Service. Failure to Deposit Penalty
Pay close attention here. Payroll taxes you withhold from employees are trust fund taxes, and if the LLC fails to remit them, any person responsible for the decision not to pay can be held personally liable for the full amount under 26 U.S.C. § 6672. The penalty equals 100% of the unpaid trust fund taxes.21Office of the Law Revision Counsel. 26 U.S. Code 6672 – Failure to Collect and Pay Over Tax, or Attempt to Evade or Defeat Tax It’s one of the few areas where the LLC’s liability shield doesn’t hold, and the IRS can reach the owner’s personal assets.
The Filing Calendar
Most employers file Form 941 each quarter. Returns are due the last day of the month after the quarter ends: April 30, July 31, October 31, and January 31.22Internal Revenue Service. Instructions for Form 941 Very small employers with total annual employment tax liability of $1,000 or less may qualify to file Form 944 once a year instead; that generally lines up with paying $5,000 or less in total wages in the year.23Internal Revenue Service. Instructions for Form 944 You have to request the switch from the IRS rather than change filing formats on your own.24Internal Revenue Service. Employers: Should You File Form 944 or 941
FUTA goes on Form 940, filed annually and generally due January 31 of the following year.25Internal Revenue Service. About Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return By January 31 each year you also furnish Form W-2 to every employee who received wages and file copies with the Social Security Administration.26Social Security Administration. Deadline Dates to File W-2s If the deadline falls on a weekend or holiday, it moves to the next business day.
Keep payroll records for at least three years under the FLSA and the Age Discrimination in Employment Act. Personnel and employment records have a separate one-year minimum under EEOC rules.27U.S. Equal Employment Opportunity Commission. Recordkeeping Requirements
State Registrations
Federal isn’t the whole picture. Most states require registration for state unemployment insurance, with coverage generally triggered by paying $1,500 or more in wages in any quarter or having at least one employee for 20 weeks in the calendar year.28U.S. Department of Labor – Employment and Training Administration. Unemployment Insurance Tax Topic Rates and taxable wage bases vary by industry and claims history, so check with your state workforce agency before the first hire starts. Many states also impose their own income tax withholding, disability insurance contributions, or paid family leave programs on top of the federal requirements.
When the ACA Employer Mandate Kicks In
Small LLCs don’t have to provide health insurance under federal law. The Affordable Care Act’s employer shared responsibility rules apply only to “applicable large employers,” defined as businesses that averaged at least 50 full-time employees, including full-time equivalents, during the preceding calendar year.29Internal Revenue Service. Employer Shared Responsibility Provisions Crossing that line requires offering affordable minimum-essential coverage to full-time employees or facing a potential penalty. Most LLCs sit well below the threshold, but track headcount if you’re growing.