Who Is (and Is Not) an “Employee”?

Although small business owners may think of themselves as “self-employed,” they are not necessarily employees of their own business. The term “employee” is commonly used in federal and state laws governing businesses, including the Americans with Disabilities Act (ADA) and the Florida Civil Rights Act (FCRA), but the precise definition of “employee” can vary depending on circumstances. A part owner of a business may be classified as an “employee” for some purposes but not others. This can prove especially confusing when determining the total number of employees a business has, which is critical because the ADA and FCRA only apply to firms with 15 or more “employees.”

Understanding Business Structures

How you structure your business goes a long way in determining who is, and is not, an employee. If you are a sole proprietor, then you are the owner of your business. There is no legal distinction between a sole proprietor and his or her business; they are one in the same. You may hire and fire employees, but you yourself are not an employee.

But what if there is more than one proprietor? Two or more persons may form a partnership. Like a sole proprietorship, there is no legal distinction between a partnership and the individual partners. Each partner shares in the profits or liabilities of the business. For tax purposes, partners are not considered employees. And as a general principle, partners are never considered employees so long as they all participate in the management of the business.

Things may become murkier if the business has a more formal legal structure, such as a corporation or limited liability company (LLC). These corporate forms exist separately from the owners. That is, a corporation and its shareholders—or an LLC and its members—are separate entities. This primarily serves to insulate the liability of individual owners for business debts. But what does it mean in terms of defining “employee”?

The answer is that there is no fixed answer. The government and the courts look at a variety of factors in deciding whether a person is an owner, employee or even an independent contractor. A basic question is who has control of the working relationship. If three people form a partnership, but one partner has the ability to fire the other two partners, that may suggest an employment relationship despite the business structure. Similarly, if the business is a corporation, a manager may still be considered an employee even if she has some stock in the business or holds the title of “president.”

It is also important to understand that a person may be considered an “employee” under some laws but not others. The Internal Revenue Service may define an employee differently for tax purposes than Florida officials may define it in applying state anti-discrimination laws. Such confusion is why all employers should work with an experienced Florida business attorney who can help determine obligations under the law. Contact Naples attorney John S. Sarrett today if you have any questions.

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