The sole founder who manages the company has the right not to enter into an employment contract with himself and not to pay himself a salary, receiving all income in the form of dividends. To do this, it is enough for him to appoint himself as a director based on his own decision. The advantage of this design is that he does not pay insurance premiums. The downside is tax risks.
Tax officials insist that salaries and insurance premiums must be paid in any case, since the director performs job duties. Inspectors call the only founders without salary to the commission and convince them to change the work pattern.
Some managers set themselves a minimum salary, hoping to both maintain savings and not argue with the tax authorities. This doesn't help the situation. The minimum wage is still below the industry average. After all, managers who do not have a 100 percent stake in the company's authorized capital usually receive compensation at market levels.
Should I enter into an employment contract with myself?
To conclude an employment contract, two people are needed: the employee and the employer. If both are represented by the same person, then this is no longer a contract.
Article 273 of the Labor Code directly states that the chapter on labor relations with managers does not apply to the sole founders who manage their company themselves. In this situation, the founder appoints himself as a director by his decision (letters of Rostrud dated 03/06/2013 No. 177-6-1, Ministry of Finance dated 03/15/16 No. 03-11-11/14234, dated 02/19/2015 No. 03-11-06/2/ 7790).
There are many court decisions that briefly mention employment contracts that the sole founder concluded with himself. That is, in practice, these agreements are widespread, which is what tax officials advocate for.
Controllers from the funds even tried to fine companies for failure to submit employment contracts and orders for inspection - 200 rubles each. for each document not submitted. But the courts consider the fines to be unlawful, since the companies, in principle, do not have these documents, which means they cannot be fined (Resolution of the AS of the West Siberian District dated March 10, 2017 No. A27-594/2016).
Founder and director are one person: risks
What should an entrepreneur do in such a situation? There is no clear answer. But we believe that the risk of adverse consequences is much higher in the absence of a TD with the director. Rostrud, which is a control body in the labor sphere and is authorized to conduct inspections and impose administrative penalties, as mentioned above, often changes its point of view on this issue.
At the same time, the courts have developed a stable practice of recognizing relations with the founding director as labor relations. Let us remind you that for violations of labor legislation on the basis of clause 1 of Art. 5.27 of the Code of Administrative Offences, a fine of 30,000 to 50,000 rubles is imposed. from a legal entity. Before registering a TD with a director, it is necessary to create a decision of the sole participant of the LLC on the appointment of a director.
The Ministry of Finance is on your side
Speaking about the sole founder, the Ministry of Finance did not give him the right to choose: to conclude or not to conclude an employment contract with himself.
If the head of the organization is its only founder, that is, one of the parties to the employment contract is absent, then the employment contract cannot be concluded (letter of the Ministry of Finance dated March 15, 2016 No. 03-11-11/14234).
The head of an organization, who is its sole founder, cannot calculate and pay his own salary (letter of the Ministry of Finance dated February 19, 2015 No. 03-11-06/2/7790).
The financial department is talking specifically about the impossibility of paying oneself a salary, and not about the fact that the founder has the right not to do so. Other letters contain the same categorical statements (letter of the Ministry of Finance dated October 17, 2014 No. 03-11-11/52558). We did not find any more recent letters with a different position. Therefore, the demands of tax officials contradict the opinion of their superiors. The courts also talk about the impossibility of concluding an employment contract (resolution of the Twentieth AAS dated June 30, 2017 No. A23-7189/2016).
How does an employment contract with a director - the sole founder - differ from others?
The conclusion of an employment contract between the founder of an organization and himself as a hired director is carried out in accordance with the norms of legislation regulating the conclusion of a regular employment contract - according to the general norms of the Labor Code of the Russian Federation (determination of the Supreme Court of the Russian Federation dated February 28, 2014 No. 41-KG13-37).
At the same time, the norms of Chapter 43 of the Labor Code of the Russian Federation, which regulates labor relations with the participation of the head of an organization, do not apply to legal relations in which the manager is also the founder. However, the position “general director” may well appear in the work book - there are no prohibitions on this in the current legal norms.
An agreement with a business company presupposes that the director has basic labor rights (and, of course, responsibilities - however, in this case there is essentially no point in talking about them, since the same person is both an authorized and an obligated party).
Let's consider what legal rights the owner of a company who hires himself to work in an organization begins to have.
Are there agreements with other employers?
Often, the sole founder of a company continues to work in another organization under an employment contract until his own company gains momentum. In this situation, he will not physically have enough time to work under an employment contract in his company.
And the company does not need its director to work a strictly specified number of hours per day, which are established for part-time workers. For example, 30 minutes during the day may be enough to meet with a potential supplier. So the situation turns out that the director performs his leadership functions, but at the same time does not even earn his potential salary.
Director without salary - how to register
If your manager has confirmed his decision to work without salary, counting only on profit, then he needs, by his decision as the sole founder, to assume the responsibilities of the sole executive body - director, without indicating the amount of monetary remuneration. In this case, an employment contract is not concluded, and there is no need to keep a time sheet for the boss either. When calculating the average headcount, owners of the organization who do not receive salaries are not taken into account. Therefore, if there are no other employees in the organization, “0” is entered in the certificate submitted to Rosstat. The average headcount, if only the director is unpaid, is calculated according to established rules, without taking into account the “unpaid” manager.
Refusing your salary is your right
The Supreme Court considered an interesting case. The company had two directors with whom employment contracts were concluded. But these managers filed an application with a request not to accrue or pay their salaries. In this regard, the company did not keep track of their working hours and did not pay personal income tax or insurance premiums. The tax authorities filed claims, assessed additional personal income tax and wage contributions, which were determined by calculation based on the minimum wage.
However, the appellate court decided that the employee has the right to voluntarily refuse to receive wages. The main thing is that the legal rights and interests of other participants are not violated, and that these workers are not influenced in order to limit their rights (Resolution of the Eighteenth AAS dated July 4, 2016 No. A34-8837/2015).
The Supreme Court upheld this decision. He clarified that controllers do not have the right to determine the base for contributions by calculation. It includes only accrued payments. If wages have not been accrued, then insurance premiums are not calculated (Decision of the Supreme Court dated February 17, 2017 No. 309-KG16-20570).
In general, violations of labor legislation should be dealt with by the labor inspectorate, not the tax office.
Such arguments will not work in relation to an ordinary employee; the court is unlikely to believe in a voluntary refusal of salary. But the sole founder already has enough incentives to work for his company. No one can accuse him of forcing himself to sign an unfavorable clause.
However, keep in mind that some courts consider the refusal of even the sole founder to pay a salary illegal, not to mention other employees. And they support inspectors who charge additional insurance premiums based on the minimum wage (Resolution of the Sixteenth AAS dated August 15, 2016 No. A25-2189/2015).
Why not paying a director's salary is risky
So, the director insisted, and the accountant agreed not to accrue or pay his salary.
In this case, when checking, the Federal Tax Service will definitely ask you for an explanation of why the director of the company does not receive a salary. It’s one thing if a director works in two organizations at the same time: in one he receives a salary, and in the other he does not. In this case, the probability of “unsubscribing” from the inspectors is quite high. How to justify the lack of salary for a director who has only one place of work?
In this case, nothing prevents controllers from charging additional insurance premiums to the company using the calculation method - based on the level of the minimum wage in the region. And, of course, personal income tax, penalties and fines for non-payment.
Submit reports to the Pension Fund
The Pension Fund considers that the only founder who manages the company himself without salary is considered an insured person. Therefore, in relation to it, the organization is obliged to submit reports on individual (personalized) accounting, including in the form SZV-M and SZV-STAZH.
The fund's arguments are as follows. The appointment of a person to the position of director is formalized by the decision of the sole founder. On its basis, he performs his labor functions.
This means that labor relations with the director as an employee arise not from the employment contract, but from the decision of the sole participant, but they still exist. And since the director is in an employment relationship, it means he belongs to the working insured person.
How to apply for a CEO job
Before appointing a certain individual to the position of general director, he must be checked for absence of disqualification. The check is carried out in the register of disqualified persons. The fact is that the head of the organization should not be disqualified. You can request information from the tax authority or find it on the Internet. However, in order to confirm the accuracy of the information, it is better for the company to have an official document. If the company did not conduct a preliminary check, and during the period of work it turned out that the hired person was on the list of disqualified persons, the contract with him will need to be terminated. At the same time, the fine for accepting such a person as a director will be 100,000 rubles.
The procedure for appointing a director is provided for in the constituent documents. Thus, they must indicate that the director is appointed by a decision of a meeting of company participants (shareholders, board of directors), or by a supervisory body. An employment contract is also concluded with the director, which is signed by the chairman of the meeting at which the decision on the appointment was made, or another authorized person (
No activity - no salary
If no one else works for a company with a single founder, it enters into rare one-time deals, and the revenue is small, then we can say that permanent operations have not yet been established. In this situation, it is not profitable for the founder to set his own salary, since his efforts do not bring results.
But the lack of constant activity can be taken advantage of only if the turnover really tends to zero. In practice, this argument will not work in a situation where the director received money on account, purchased materials, entered into supply contracts, purchased and delivered goods, and the company’s revenue for the year exceeded 1 million rubles.
It is undesirable for the company to be unprofitable
The main difference between dividends and wages is that dividends can only be calculated based on the results of the year when distributing profits (Clause 1, Article 43 of the Tax Code), and the salary is set when signing an employment contract (Article 57 of the Labor Code).
In an uncertain environment, a founder cannot predict how much his start-up company will earn. Perhaps she will receive losses, and then the owner will not earn anything at all. And the salary will only aggravate the negative results of the company’s work, which will affect its financial situation, and therefore the ability to get a loan.
Bring the company's development forecasts with you to the commission. Prove that the probability of losses at the initial stage is high, and profitability is expected only in the second or third years of work. Such forecasts will help strengthen the founder's position.
The right type of contract
The employment agreement with the general manager of the LLC must contain the following points:
- Full name of the employee (director) and the name of the organization acting as the employer who agree to conclude an employment contract;
- certificates required to certify the employee’s identity and information about them;
- employers are required to provide a taxpayer identification number;
- the representative of the employer who has undertaken to sign the employment contract must provide information about himself and the basis that gives him the appropriate authority;
- where and when the employment agreement was concluded;
The employment agreement also contains mandatory clauses:
- workplace;
- compliance with the labor function (job work corresponding to the staffing table, consideration of professions, indication of qualification characteristics of specialties; determination of the exact type of work that is assigned to the employee);
- what day does work start ? The formation of an emergency work contract takes into account the indication of the validity period and circumstances under which a fixed-term employment contract is concluded (the basis is the Labor Code or federal law);
- How will wages be paid ? The tariff rate or salary (official income) of the employee is indicated, as well as the amount of allowances, additional payments and incentive payments;
- working time and rest time . It is established in the case when this employee’s schedule diverges from the general rules in force at the employer;
- circumstances of mandatory social insurance of the employee (the Labor Code or federal law is taken as a basis);
- other points provided for by labor legislation and other legal acts.
- The decision to appoint a general director to the position
- Order to take office
- Employment contract with the general director
- Order on hiring an employee
Catalog of papers required to conclude a contract with the general director:
Don't replace your salary with dividends
Insisting on the right not to pay himself a salary, the director must be sure that he has completed all the formalities when paying dividends. Thus, in one of the disputes, the sole founder paid himself dividends monthly, although the LLC has the right to distribute profits no more than once a quarter (Clause 1, Article 28 of the Federal Law of 02/08/1998 No. 14-FZ).
Taking into account the fact that at the end of the year the company's profit was less than the amount paid to the founder, it was recognized as wages and additional insurance premiums were added. The court supported the claims of the tax authorities (resolution of the Volga District Administrative District dated May 30, 2016 No. A55-8232/2015).
The company's charter must state the founder's right to distribute profits once every quarter or half a year. Without this condition, he will receive dividends only at the end of the year. At the time of distribution of profits, the company's participants must fully pay the authorized capital.
The company must not have any signs of bankruptcy, and the value of its net assets must not be less than its authorized capital. In your accounting software, payments should be called “dividends,” not “salaries.”
How to pay yourself if you have an LLC
Unlike an individual entrepreneur, an LLC is not identified with an individual. The organization’s property is separate from the owner’s property, so the founder cannot spend the company’s money for personal purposes. Each expense must be justified and documented.
How then can a manager generate income that can be spent on personal needs? We will talk about legal methods, and there are two of them - payment of dividends to the founder of the LLC and monthly salary under an employment contract.
Dividends of LLC participants
Dividends can be paid from net profit - this is the company’s profit after taxes (Article 28 of Federal Law No. 14-FZ “On Limited Liability Companies”). All participants of the company who have a share in the authorized capital can receive dividends or a part of the profit, as specified in the law. Accordingly, if there is only one founder, then 100% of the net profit can be paid as dividends.
How to pay dividends
To pay dividends, the Company must officially decide to distribute its net profit among the company's participants. The decision must indicate which participant is entitled to what share, how many days after the meeting the company will pay, and to which account it will transfer.
If the payment period is not defined in the decision or in the Charter, then by law it is 60 days from the date of signing the Decision. Then, in accordance with the decision, dividends are paid.
When can dividends be paid?
Dividends are transferred to the founders in accordance with the Payment Decision. If the payment period is not defined in the decision or in the Charter, then by law it is 60 days from the date of signing the Decision.
Society members can make such a decision no more often than once a quarter, and preferably once a year. Making the decision more than once a year, while legal, can cause problems. Dividends can be taken from profits, and you only know profits at the end of the year. If you distribute and give away the money earlier, you risk taking away too much and remaining at a loss.
Dividends should be paid at the end of the year, when financial results are summed up and annual profit is known.
At the same time, you can withdraw dividends not only for the year that has just ended. If the company has been profitable for several years, and you have not yet received dividends, you can take the net profit for all past years.
How much does it cost to pay out as dividends?
Dividends can only be paid from the company's net profit. This is the only factor limiting the size of dividends.
Recommendations on the amount of payments do not differ much from individual entrepreneurs - leave funds for investment in the company’s accounts.
Taxes on dividend payments
An important point is that dividends are not the basis for calculating insurance premiums, unlike wages. This means that dividends can become an object of savings for the company.
Founding director salary
The salary of the founder of an LLC is more complicated; even the Ministry of Finance, the Ministry of Health and Social Development and Rostrud are confused in their testimony. Over the years, departments issued explanatory letters with completely different conclusions: some stated that the founder could not be employed and receive a salary, while others stated that he was obliged.
The Labor Code requires concluding an agreement with all employees, without directly excluding the founders of the company. Art. 16 of the Labor Code of the Russian Federation states that labor relations arise as a result of election to a position. Thus, if the founder performs the functions of a director or any other employee, then an employment contract must be concluded and a salary must be paid.
In the case of a director, the agreement will be signed by one individual on the part of the employee and the employer, but this is not scary: acting on behalf of a legal entity, the individual becomes depersonalized and becomes a company. Therefore, such an agreement does not contradict Art. 20 of the Civil Code of the Russian Federation, which is sometimes referred to by departments.
How to determine your salary
The salary can be any amount, but not less than the minimum wage - the amount differs depending on the region (see table of minimum wages by region for 2021).
A small director’s salary is usually set if they want to reduce the cost of insurance contributions and pay the bulk of the director’s income as dividends.
Please note that a director’s salary at the minimum level may arouse suspicion from the tax authorities. The tax office may call the salary commission and impose a fine if it proves that the low salary is unreasonable.
A salary at the minimum wage level is suspicious for the tax authorities. Take the market average for your position
If you don’t want to answer tax questions, it’s safer to pay the average salary for similar positions in your region. The amount can be found out using any site for searching and posting vacancies.
Where does the director get the money?
The situation is especially risky when the sole founder does not pay himself not only a salary, but also dividends. Then the tax authorities will accuse him of cashing out, withdrawing shadow wages and evading personal income tax.
It is important to explain how the director lives if he does not need a salary. For example, he may receive a salary from another company, dividends from another company. Perhaps he sold the property and lives on the proceeds. He had bank deposits, which he began to spend. All these amounts must be confirmed by documents.
Founding director salary
If the manager is the only participant, in the absence of a written employment contract, the amount of his salary can be provided for in the staffing table.
If there is an employment contract, then according to Art. 57 of the Labor Code of the Russian Federation, the condition on remuneration of the employee must be included in the employment contract. According to Article 133 of the Labor Code of the Russian Federation, the monthly salary of an employee who has fully worked the standard working hours during this period and fulfilled labor standards (job duties) cannot be lower than the minimum wage (minimum wage).
In addition, the director, who is the sole founder, may receive dividends and not receive a salary. But when paying them, the following rules must be observed:
- pay dividends no more than once a quarter;
- pay from the organization’s net profit remaining after paying all taxes;
- based on the owner's decision.
The most common mistake when paying dividends is paying them monthly. Any audit will reclassify such payment of dividends as salary with all the ensuing tax consequences.
