If you’re planning to start a limited liability company (LLC), you might have questions about this type of business entity, such as whether it can have employees. The answer is yes, but your LLC needs to take specific steps to hire employees.
What Is an LLC?
An LLC is a popular business structure for startup companies due to its many benefits. An LLC provides personal liability protection, for example, so your assets are not at risk if your business is sued or cannot pay its debts.
Also, an LLC is a “pass-through entity” in taxes, meaning that the LLC itself is not taxed. Instead, income passes through the company to the LLC owners or members, who report it on their tax returns.
LLCs also offer flexibility in management, as there are few requirements regarding organizational structure.
Get an EIN
If your LLC has more than one member, you’ll need an employer identification number (EIN) for tax reporting purposes. If you’re the sole member of the LLC, you don’t need an EIN unless you’re hiring employees. Then you do need to obtain an EIN.
The Internal Revenue Service (IRS) uses your business’ employer identification number (EIN) to identify your company, much the way a Social Security number is used to identify individuals. In addition, an EIN is used for tax filing purposes, including for federal employee withholding taxes and payroll taxes.
According to the IRS:
All EIN applications (mail, fax, electronic) must disclose the name and Taxpayer Identification Number (SSN, ITIN, or EIN) of the true principal officer, general partner, grantor, owner or trustor. This individual or entity, which the IRS will call the ‘responsible party,’ controls, manages, or directs the applicant entity and the disposition of its funds and assets. Unless the applicant is a government entity, the responsible party must be an individual (i.e., a natural person), not an entity.
When you fill out the application, you’ll need the following:
- DBA name, if you have one
- Name, title, and Social Security number of managing member or owner
- Business address
- State in which your business is registered
- Reason for applying
- Main business activity
- Products/services offered
- Closing month of your accounting year
- Contact phone number and email
The application for an EIN is Form SS-4, and you can submit it via the IRS website. Alternatively, you can print the form or mail it. If you apply online, your EIN will be issued immediately.
Forms Needed to Hire Employees
When you hire new employees, they need to fill out a Form W-4. The W-4 specifies the employee’s filing status, dependents, and additional withholding requests. This is information you’ll need to know how much in federal taxes to withhold from the employee’s paycheck.
The form must be retained in the employer’s records.
Form I-9 is filled out by both the employee and the employer. It verifies the identity and employment authorization of the person being hired. Employees must also present their employer with official identity and employment authorization documents.
Suppose you offer direct deposit to pay your employees. In that case, you’ll need to collect their bank routing numbers and account numbers and get their authorization to make direct deposits to their accounts. Your bank may have a form to provide your employees to fill out.
Form W-2 reports all wages paid to each employee, taxes withheld and benefits information. You must give your employees copies of the form by January 31st following the tax year. You’ll also submit copies to the Social Security Administration and state and local tax authorities.
When filing your withholding and payroll taxes, there are other federal and state forms that you will need, which can be obtained online.
Payroll can be complex and comes with many regulations. As a result, many business owners turn to a payroll service provider to handle their payroll process. They will take payroll calculations and payments and payment of taxes. They may also help onboard employees. Some offer human resources support tools as well.
The simple answer is yes, LLCs can have employees. First, however, you must do your homework to ensure that you follow proper hiring processes and correctly handle your payroll.
A payroll service can be invaluable in saving you time and making sure your business complies.