Do corporate officers need to be employees?

December 20, 2007 10:15 AM

If I have a small corporation and intend to have officers (VP, Directors, etc.) who are currently corp-to-corp contractors, do I need to convert those officers to employees? In other words, do officers of a corporation need to be employees? I know, I know -- YANAL and/or YANML. :)

As a side question, if I have a contractor who performs work for MOSTLY my company, but I am contracted with their corporate entity, should I worry about converting them to an employee for payroll tax purposes? Their corporations, ostensibly, can sub out the work I assign to them (they sometimes do that, in fact). In other words, can they just remain "vendors" for life?

posted by Merdryn to Law & Government (3 answers total)

Well, since we don't even know what jurisdiction you are located in, it is hard to give you an answer. But generally, I can let you know that Officers "may" be compensated for work they do for the corporation. When lawyers use the word "may" it specifically denotes an option. They already have a legal relationship to the corporation, which is far more permanent than any employee's relationship.

Meanwhile, a contractor is just that - and not an employee. You have agreed with that person to perform a task, and the contract you have with them is in many ways like an employment contract, but is ultimately different. Just think of it this way, when you go to get your hair cut, the hairdresser isn't your employee, he works for the company that you go to. But you are contracting with that company for your hairdresser to cut your hair.

As you know, IANYL. I'd suggest that you contact one though. Trying to run a corporation without someone to give you valid legal advice is a recipe for trouble.
posted by greekphilosophy at 10:41 AM on December 20, 2007

Call a lawyer.

This stuff is often very specific to the jurisdiction you are in (and we don't know). Your statutory laws will govern this. If you don't talk to a lawyer, you may end up screwing yourself by doing something for an independent contractor that converts him to an employee and creates exposure.

Seriously, talk to a lawyer and ignore everything else you read here.
posted by dios at 12:04 PM on December 20, 2007

Without more specifics, I can't say whether or not the person(s) you mention are or are not legally contractors or employees. But I would say that people don't appreciate contracting with a company on such a regular basis, and under such conditions, that they aren't quite legally required to be on payroll as employees, without being offered a position as an employee, entitling them to whatever benefits and job security comes with that.
posted by gauchodaspampas at 12:10 PM on December 20, 2007