Small business · Small business insurance

When do I become an employee of my own company? Pros/cons?

Dave Shefferman Founder/President at MadeMoments

September 30th, 2015 operates as a single member LLC that fulfills high end gifts of Champagne and chocolate to our customers' clients, partners, prospects, etc.  

I've been operating essentially as a sole proprietor with a few part-time/1099 contract employees who help with our shipping/fulfillment operations.  

As we cross the $1M run rate, and the entire business (currently) solely relies on me, I'm looking for guidance on the next steps in our growth. 
  • At what point does it make sense to hire myself as an employee of the company and pay myself a salary, provide some sort of benefits, etc?  What are the pros and cons of that?  
Does anyone have recommendations on payroll/benefits companies that can help facilitate this for a single employee operation? 

  • How can I protect the business against any accident or illness that may occur which could take me out of the game for a period of time?  What business continuity protection is out there?  
The workload doesn't (yet) justify hiring anyone.  But as a one-man show, there's high risk of loss of income if something were to happen.  

What other resources are out there for small business operators as our business grows?  

Thanks for your input and support of this community!

Stephen Salaka Product Development Manager at Tsunami Tsolutions LLC.

September 30th, 2015

In terms of BCP there you can always purchase insurance to help cover costs associated with your business being down. However, I would look into as much automation as you can - see what tasks you do on a daily basis, and see how much of that can be automated or outsourced to other organizations or your "part timers". It's hard going from running the day to day to taking a step back, and running the business - and it seems that this is where you are in your timeline. It might be beneficial to spend some time on a business advisor or process advisor to review the daily operations and get advice on how to better leverage the automation/outsourcing that exists out there.

Kenneth Larson Retired Aerospace Contracts Manager, MicroMentor Volunteer and Founder "Smalltofeds"

October 2nd, 2015

Your self-employment taxes at the federal level are the highest risk unless you have the personal deductions to deal with them on the flow through of revenue and expenses. 

Making your self an employee allows you to pay yourself regularly, together with the employer share of things like FICA,FUTA and SUTA.  It therefore negates the big hit at year end on the flow through. 

You may wish to look at the manner in which you are accounting for retained earnings and distribution to yourself during the year as well, seeking the best possible timing in those for tax purposes. 

Charlie Graham Entrepreneur & Executive With 15+ Yrs Exp. Building Successful Consumer & SaaS Businesses

September 30th, 2015

Hey Dave,

I'd talk to a tax accountant about employee vs taking it out via flow-through taxes. As you probably know, it gets complicated depending on the city of your business and city of where you work, etc...

Another thing to think about wrt becoming an employee: If you add benefits (401k, medical, etc...) and subsequently bring other people on as employees you will likely have to give them the same exact benefits you give yourself.  In some cases (i.e. 401k) you may have to give them more than you give yourself to get around discrimination testing.  Just something to keep in mind.

As for benefits/payroll - ZenPayroll should be pretty good for you but it will still cost about $20-$40 a month.  BofA also has a pretty inexpensive payroll system.  As for Benefits, ZenPayroll is just starting to add it so you may go with them.  Alternatively, I have a good benefits person I can put you in touch with.  Email me offline.