A single-member LLC is allowed to hire employees. Having one member does not limit the number of employees the business can hire.

A single-member LLC can employ full-time, part-time, temporary, or seasonal workers. Once it hires employees, the LLC must manage payroll, employment taxes, employment eligibility verification, and applicable state requirements.

Single-Member LLC Employees at a Glance

Question Answer
Can a single-member LLC hire employees? Yes
Does it need an EIN? Yes, if it has employees
Are employees paid with Form W-2? Generally, yes
Must the LLC run payroll? Yes
Is the owner automatically an employee? No, not under the default tax classification
Can the owner become an employee? Usually, if the LLC elects corporate or S corporation tax treatment
Can the LLC hire independent contractors? Yes, if the workers meet contractor requirements

Does a Single-Member LLC Need an EIN to Hire Employees?

Yes. A single-member LLC with employees generally needs its own Employer Identification Number, or EIN.

By default, a single-member LLC is treated as a disregarded entity for federal income tax purposes. The business income generally appears on the owner's tax return. For employment tax purposes, however, the IRS treats the LLC as a separate entity. The LLC must use its own legal name and EIN when it reports and pays employment taxes.

The LLC applies for an EIN by filing IRS Form SS-4. An EIN may also be required for certain excise taxes and some state registration requirements.

Is the Owner of a Single-Member LLC an Employee?

Default Tax Treatment

Usually, no. If the single-member LLC has not elected to be taxed as a corporation, the owner is generally treated as self-employed rather than as an employee of the LLC.

The owner typically does not issue a Form W-2 to themself. An individual owner generally reports the LLC's business income and expenses on the applicable federal tax schedule, often Schedule C, and pays any required self-employment taxes.

The owner's tax status does not prevent the LLC from hiring other people as employees.

S Corporation or Corporate Tax Election

A single-member LLC can elect to be taxed as an S corporation or another type of corporation. If the owner performs more than minor services for an S corporation, the owner is generally treated as a shareholder-employee and must receive reasonable compensation through payroll before taking certain distributions.

An S corporation election is not required to hire employees. It is a separate tax decision that can create additional payroll and tax responsibilities.

What Must a Single-Member LLC Do Before Hiring an Employee?

Before the first employee starts work, the LLC should generally:

  1. Obtain an EIN.
  2. Register for state payroll accounts, including state income tax withholding or unemployment tax accounts when required.
  3. Collect Form W-4 so the LLC can calculate federal income tax withholding.
  4. Complete Form I-9 to verify the employee's identity and authorization to work in the United States. The employee must complete Section 1 no later than the first day of work. The employer generally must complete Section 2 within three business days.
  5. Set up payroll to withhold federal income tax, Social Security, and Medicare taxes.
  6. Pay the employer share of Social Security and Medicare taxes.
  7. File payroll tax returns, commonly Form 941 each quarter. The IRS may allow some employers to file Form 944 annually instead.
  8. Provide and file Form W-2 after the end of the calendar year.
  9. Check state and local rules for workers' compensation insurance, unemployment insurance, wage notices, paid leave, business licenses, and employee records.

The exact requirements depend on where the LLC operates and where its employees work. State and local rules can add obligations beyond federal payroll requirements.

Can a Single-Member LLC Hire Independent Contractors Instead?

Yes, but the LLC cannot classify a worker as an independent contractor only to avoid payroll taxes.

A worker is generally an employee when the facts show an employment relationship. Under the federal Fair Labor Standards Act, the Department of Labor considers factors such as:

  • The worker's opportunity for profit or loss
  • The worker's investment in equipment or resources
  • The permanence of the relationship
  • The LLC's degree of control
  • Whether the work is integral to the business
  • The worker's skill and initiative

A contract or Form 1099 does not automatically establish independent contractor status. State agencies may use different classification tests, so the LLC must follow the rules that apply in each relevant jurisdiction.

Bottom Line

Membership and employment are separate questions. A single-member LLC can hire employees without adding another LLC member. Under the default tax treatment, the owner is generally self-employed. With a corporate or S corporation election, the owner may become a shareholder-employee who must receive reasonable compensation for services performed.