Can a Spouse Work for an LLC for No Pay?
If your spouse occasionally helps out your limited liability company on an informal basis, you don't have to -- and shouldn't -- pay him. However, if your spouse helps out regularly and interacts with others on behalf of your company, you must make your spouse an employee, an independent contractor or a member of the company. Making him an employee creates a tremendous administrative burden if you have no other employees. Making him an independent contractor can jeopardize the limited liability protection you gained by creating the LLC. Making him a member provides him with the same limited liability protection that you have and enables him to work for the company without getting paid.
Someone who works for no pay is a volunteer. An individual can volunteer to help non-profit public service, religious or humanitarian groups without pay and not be considered an employee. Individuals are also permitted to volunteer for public sector employers. The Fair Labor Standards Act, however, does not allow a person to volunteer for no pay at a for-profit company. Therefore, if your LLC is a for-profit company and your spouse regularly works for your LLC but is not a member of the company, you must pay him.
If your non-member spouse works for your LLC on more than an occasional basis, the company can hire your spouse as an employee. If you don't have other employees, however, this creates a paperwork and administrative obligation for you as employer. The company must pay payroll taxes, withhold other taxes, report state and federal taxes, pay for unemployment insurance and workers' compensation insurance and comply with workplace safety regulations and required reporting.
If your spouse meets the eligibility rules to be considered an independent contractor, it might relive you of the administrative burden of being an employer, but it can negate the limited liability you gain from the LLC. An independent contractor is personally liable for her actions unless she has her own LLC through which she contracts employment with your company. When your spouse becomes personally liable for her actions, your personal marital property and any of your spouse's personal property, which might include your jointly-owned personal property, are at risk.
If your spouse is neither an employee nor an independent contractor, he might be considered an agent of the LLC and gain protection from personal liability or he might be considered a general partner of the LLC and have complete personal liability for his actions. If the IRS or someone with a claim against the company challenges his status, it's a risky decision to leave the classification decision to a court or to the IRS.
The best option is to make your spouse a member of your LLC. He gains limited liability protection and does not have to be paid a salary. Depending on the state in which the company is registered, however, he might need to make a capital contribution to the company in exchange for his membership. Each year, your spouse is allocated a portion of the company's profit and loss according to his capital account balance or other distribution method defined in the company's operating agreement.