Does the owner of a company count as an employee?


Editorial team Published on

Whether the owner of a company counts as an employee depends entirely on the legal structure of the business.

When the Owner is NOT an Employee

If a business is unincorporated, the owner and the business are legally viewed as the same entity. According to IRS guidelines, owners under these structures are considered self-employed rather than employees:

  • Sole Proprietorships: The owner is the business. They cannot hire themselves as a W-2 employee.
  • Partnerships: Partners are co-owners who pool resources. The IRS explicitly states that members of a partnership are self-employed individuals, not employees.
  • Limited Liability Companies (LLCs): By default, LLC owners (called "members") are treated as partners or sole proprietors. They cannot receive W-2 wages or be considered payroll employees.

How they get paid: Owners of these businesses take an owner's draw (withdrawing money directly from the company profits) and pay self-employment taxes on the net income.

When the Owner IS an Employee

If the business is incorporated, it exists as a separate legal entity from its owners.

  • C Corporations and S Corporations: If an owner (shareholder) actively works in the daily operations of the corporation, they are legally considered a common-law employee and a corporate officer.
  • LLCs with a Corporate Election: If an LLC formally elects to be taxed as a C corp or an S corp, the owners can also transition into employees.

How they get paid: The IRS requires owner-employees of corporations to be placed on the official payroll, receive a W-2 paycheck, and be paid a "reasonable salary" subject to standard federal tax withholdings.

Summary for Legal and Administrative Counting

  • Taxes & Payroll: Only corporate owners count as employees.
  • Labor Laws (e.g., FLSA, EEOC): When counting staff size to determine if a business must comply with certain employment laws (like mandatory anti-discrimination thresholds), independent contractors and non-corporate business owners generally do not count toward the employee total.