Can a Spouse Work for an LLC for No Pay?

By Larissa Bodniowycz, J.D.

Can a Spouse Work for an LLC for No Pay?

By Larissa Bodniowycz, J.D.

Generally, a spouse can actually work for a limited liability company (LLC) without receiving pay. While federal and state wage and hour laws usually require that anyone who works for a private company such as an LLC must receive payment for their work, spouses are often exempt from these requirements.

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Even when not required, it is often a good business decision to compensate them in some manner for the work performed. You can do this by paying your spouse as an employee or independent contractor or by compensating them through member draws, depending on the type of work performed and whether they are a member or owner.

Member vs. Non-Member Payment

If your spouse is not a member of the LLC but provides services to the business, you can pay them as an employee or independent contractor. In general, someone who regularly provides services in a manner similar to a part-time or full-time employee should receive pay as an employee. With a few exceptions, both the business and the individual must pay taxes on the wages in the same manner they would if no family relationship existed between them. Benefits involved with paying your spouse as an employee include a tax write-off for the company and that person accruing Social Security credits.

Someone who provides one-off services to the company on an irregular basis should generally receive payment as an independent contractor. In that situation, they must pay self-employment taxes on their income, but the LLC does not have to pay taxes on the payments made to the spouse as an independent contractor.

If they are a member of the business, they, like all owners, receive compensation through member draws. A member draw is a deduction from the owner's capital account (the amount of their financial contribution to the company plus their share of profits) for their personal use. The draw transfers from the business account to the member's personal account. Once a draw transfers to the spouse's personal account, the funds are their own. The member is responsible for paying self-employment taxes on any draws they take.

LLCs Taxed as S Corporations

By default, LLCs are taxed like sole proprietorships. In other words, the members, rather than the business itself, account for the profits on their tax returns. Owners who do not like this default rule can elect to be taxed as an S corp. instead. Different rules can affect how a spouse can and should receive payment. For example, those taxed as S corps. can pay their members as employees.

When deciding if and how to pay your spouse if they work for your LLC, consider the information herein. While your state might not have a formal requirement for payment, it is a good idea to do so regardless. Whether and how to compensate a spouse is a situation-specific issue at the intersection of small-business law and tax law. Slight nuances and even small differences between LLCs can require different approaches. It might also be a good idea to speak to a tax specialist who can assist with any tax benefits or implications that might arise.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.