Employing a partner in a limited liability company is a topic that raises many questions and doubts. However, statistics show that more and more people decide to take this step, seeing a number of benefits in it. Before you decide to hire a partner, it is worth understanding all aspects of this process, because it is not only a matter of an employment contract or mandate contract. It is also a decision that affects obligations and privileges towards the Social Insurance Institution (ZUS) and payment of taxes. Therefore, it is important to know how to properly settle such cooperation. So what does it look like to employ a partner in a limited liability company?
Employment in a limited liability company – basic rules
As a member of the management board, a partner in a limited liability company does not have to be employed - but if he wants to participate in the company's operations, he can take advantage of this opportunity. The status of the owner of capital does not guarantee him employment, which depends on an individual decision made jointly by the company's partners. This possibility is legally guaranteed by the jurisprudence of the Supreme Court, which allows the employment of partners by employees.
Deciding to employ a partner in a limited liability company requires thinking through several key aspects. Above all, please remember that under the law, a partner is considered a person conducting non-agricultural business activity and may be employed on the basis of an employment contract, mandate contract, contract for specific work or appointment contract. The choice of the appropriate form of employment depends on the specific nature of the company's activities and the shareholder's expectations.
An employment contract guarantees the greatest stability and a number of employee rights, but it involves higher costs for the company. On the other hand, civil law contracts provide greater flexibility, but do not provide the same level of employee protection. However, appointment is the cheapest and simplest way to employ a partner. It is worth remembering, however, that despite employment under an employment contract, it is possible to dismiss a member of the company's management board by adopting an appropriate resolution by the shareholders' meeting.
What are the advantages and disadvantages of employing a partner in a limited liability company?
Employing a partner in a limited liability company can bring many benefits. A partner, as a person associated with the company, usually has an in-depth understanding of its activities, which may contribute to more effective management and decision-making. In addition, hiring a partner can lead to increased commitment and loyalty, which is invaluable in the long-term development of the company. However, there are also some risks.
Hiring a partner may lead to conflicts of interest, especially if the partner is both an employee and a member of the management board. This may affect the company's current management activities and lead to unhealthy competition. Additionally, hiring a partner may lead to increased costs, especially if it requires additional employee benefits.
Employment of a partner in a limited liability company under an employment contract
The decision on the form of employment of a partner in a limited liability company is crucial and affects many aspects of both the employee and the company. One of the available forms is an employment contract. It provides stability and a number of guarantees, such as paid leave, sick leave and protection against dismissal for a management board member. However, it also involves higher costs for the employer, including social security and health insurance contributions.
In the case of an employment contract, the partner is assured of a stable income and is protected by Labor Law and the provisions of the Labor Code. This can be beneficial if the company is stable and expects long-term employment. However, the deal for a job may be less attractive for young, dynamically developing companies that need more flexibility.
It is also worth remembering that an employment contract may be recognized by state authorities as sham in the case of the sole partner of a limited liability company or a partner who holds a larger part of the shares (e.g. 94% to 6% shares in the company's share capital). In such a case, an employment relationship is concluded in which there is no requirement for remuneration for work, because the employer (the sole shareholder of the company) and the employee are the same person. This means that he is not economically dependent on his employer (it is himself). This rule also applies to the employment of the president of the management board in a limited liability company - the employment relationship of a person who is the president of a single-person management board expires when he acquires all the shares.
Employment of a partner in a limited liability company on a commission or specific work contract
A mandate contract or a contract for specific work allow for greater freedom in shaping the terms of cooperation. This may be beneficial for companies that need flexibility, for example due to the seasonality of operations or uncertain financial prospects. The disadvantage, however, is the lack of certain guarantees provided by an employment contract, such as paid leave or protection against dismissal.
Due to the fact that it is possible to conclude a civil law contract with a management board member, his net earnings are higher than in the case of an employment contract. In the social security system, there are no attempts to question the validity of such employment, as is the case in the case of an employment relationship between a partner of a company.
Employment of a partner in a limited liability company - appointment agreement
An appointment agreement is the cheapest way to entrust a function to a company shareholder for remuneration. However, it only applies to management board members, who are often shareholders. The appointment agreement is created on the basis of a resolution of the partners and must include the remuneration due for a given period of work. The management board member is then only subject to health insurance, in which the contribution is PLN 9% and pays income tax.
Legal aspects of employing a partner in a limited liability company
When analyzing the legal aspects of employing a partner in a limited liability company, several key issues regarding possible forms of contract cannot be omitted.
- Contract of employment – a partner may enter into an employment relationship on the basis of an employment contract, but it is not possible to employ a partner who is the majority shareholder or sole owner for the position of president of a limited liability company or other position.
- Mandatory contract – the partner may also undertake work on the basis of a mandate contract. In this case, there are no restrictions on the functions performed. One type of mandate contract is a management contract.
- Contract work – this is another form of employment available to the partner. A contract for specific work differs from an employment contract and a mandate contract because it is a resultant contract, not a temporary contract.
- Appointment agreement – this is employment available only to management board members. However, please remember that they can also be shareholders.
All these forms of employment have their specific characteristics and require careful analysis to ensure legal compliance and tax optimization.
Tax consequences of employing a partner
Making a decision to employ a partner in a limited liability company carries a number of tax consequences, which can have both positive and negative effects. On the one hand, employing a partner allows you to reduce the tax base, which translates into a lower tax burden for the company. On the other hand, the remuneration paid to a partner is a tax-deductible expense, which means that the company must pay appropriate taxes on it. If a partner is employed, the company must also remember about the obligation to pay social security and health insurance contributions.
Employment of a partner and ZUS - obligations and privileges
When comparing the obligations and privileges related to employing a partner in a limited liability company, one cannot ignore issues related to the Social Insurance Institution (ZUS). INa partner (and/or a member of the management board) employed under an employment contract is obliged to pay social security and health insurance contributions. In the case of an unemployed partner who became a member of the management board by being appointed in the partnership agreement, this obligation does not apply. However, a member of the management board who has been offered a civil law contract is also entitled to insurance premiums specified in the Civil Code, with the exception of the sickness contribution, which the member of the management board may pay voluntarily.
How to properly settle the employment of a partner?
The basic step in the process of settling a partner's employment is to understand the specifics of the employment contract or other contract concluded between the company and the partner. Please remember that a partner employed under an employment contract has the same rights and obligations as any other employee. In practice, this means that he must pay social security and health insurance contributions, as well as income tax. The basis for calculating these amounts is the remuneration that the partner receives for his work. If a shareholder is also a member of the management board, the situation is slightly more complicated because he or she must pay contributions not only from remuneration, but also from the so-called compensation for work on the management board. Therefore, settling a partner's employment requires special care and attention should be paid to this when keeping the company's accounting.
In this case, it is best to use online accounting services in Open Profit. We will comprehensively deal with all accounting matters of your company, including, of course HR and payroll services. We offer long-term cooperation and can accompany you from the very beginning of your journey - our services also include this help in setting up a company. Thanks to this, you will focus on what is most important in running a business!
- Can a partner be an employee of a limited liability company at the same time?
Yes, a partner may also be an employee of a limited liability company, but he or she must meet certain legal and tax requirements. It all depends on the specific nature of a given company and its agreement.
- What are the tax consequences of employing a partner?
The tax consequences of employing a partner depend on the form of employment. In the case of an employment contract, the partner is obliged to pay personal income tax. In the case of a mandate contract, the partner may be obliged to pay VAT.
- Is hiring a partner beneficial for a limited liability company?
Hiring a partner may bring benefits to the limited liability company, such as the possibility of dividing profits or increasing the share capital. However, it is also associated with certain risks, such as conflict of interest or increased tax burden.