Ordinarily, owners of a business aren’t required to participate in the unemployment compensation system and don’t need to pay unemployment tax. Neither are they eligible for unemployment benefits if they lose their jobs.
But that doesn’t mean it’s OK to simply create a partnership, have each “partner” contribute a token amount, and then treat them as employees.
Recent case: Kauffman Metals was a partnership in which one owner held control and owned over 79% of the business. Others owned 1% shares and contributed $100 toward the company, but were paid an hourly rate for their work.
The Pennsylvania Department of Labor and Industry did an audit after one of the putative owners filed for unemployment. It assessed the company more than $40,000 in unpaid unemployment compensation taxes.
The company appealed, but the Commonwealth Court let the assessment stand based on its conclusion that the 1% owners were actually employees. (Kauffman Metals, LLC, v. Department of Labor and Industry, No. 2293 CD 2014, Commonwealth Court of Pennsylvania, 2015)