Can an LLC Owner Be on Payroll?

Description of Job Titles
A job title can describe the responsibilities of the position, the level of the job, or both. For example, job titles that include the terms “executive,” “manager,” “director,” “chief,” “supervisor,” etc. are typically used for management jobs.

Ownership Structure Impact

Generally, an LLC’s owners cannot be considered employees of their company nor can they receive compensation in the form of wages and salaries. Owners are paid in draws or distributions from the business profits and may not be on the payroll.
Single-Member LLC

A single-member LLC’s owner is treated as a sole proprietor for tax purposes, while owners of a multi-member LLC are treated as partners in a general partnership.

Compensation Methods

Business owners can pay themselves through a draw, a salary, or a combination method. A draw is a direct payment from the business to the owner, while a salary goes through the payroll process and taxes are withheld.

Owner’s Draw and Taxation

With owner’s draw, LLC owners must pay income tax on all profits for the year, along with self-employment taxes, Social Security, Medicare taxes, and estimated taxes.

Paying Employees in an LLC

LLCs taxed as partnerships cannot have their compensation processed through a payroll service since they are a pass-through entity for tax purposes. LLC payroll taxes are incurred when employees work for the LLC.

Setup and Benefits

By creating a formal payroll structure within the LLC, owners can treat themselves as employees, pay taxes accordingly, establish credibility with lenders, and simplify tax reporting.

Taxation and Compensation

An individual owner of a single-member LLC that operates a trade or business is subject to tax on net earnings from self-employment. Owners can deduct salaries paid to employees, but not wages they pay themselves.