Key Takeaways

  • A corporation is not legally required to have employees; it can be formed and operated by a single person.
  • The number of employees a corporation has depends on its size, business model, and operational needs.
  • States may allow a corporation to be formed with just one director, shareholder, and officer.
  • Employee classification (full-time, part-time, contractors) impacts tax obligations and reporting.
  • When determining employee count, IRS guidelines, state laws, and business activities all matter.
  • Corporations must ensure reasonable compensation to any working shareholder to remain compliant with IRS rules.
  • You can hire an attorney on UpCounsel to help determine your corporation’s employment and compliance needs.

Does a corporation have to have employees? No, there is no legal requirement that a corporation has to hire employees. In fact, many corporations will not need employees. If you do decide to hire employees for your corporation, however, there are several tax and reporting requirements with which you must comply.

S Corporations and Employees

An S corporation is a corporation that has made a special Internal Revenue Service tax election. S corporations are not directly taxed and are instead considered pass-through entities, which means corporate profits are taxed on shareholder's personal returns. An S corporation is able to hire employees, but employees are not a requirement.

S corporations get taxed the same as partnerships and sole proprietorships. All three of these entities enjoy pass-through taxation. All profits of an S corporation get taxed on shareholders' annual individual returns. Generally, this leads to a much lower tax burden than a normal C corporation.

If an S corporation chooses to hire employees, the business is subject to a variety of employment-related taxes and payments. In addition to contributions for unemployment insurance, S corporations with employees must pay FICA taxes for Medicare and Social Security. Withholding income taxes from employee wages is also required.

In many cases, S corporations will not have traditional employees, meaning someone that does work in the business for a wage. That said, shareholders that perform work within the company can be treated as employees for tax purposes. In these situations, any dividends given to the shareholder-employee would count as income and be subject to taxation.

If your S corporation has shareholders that do work for the company and you would like to lower your tax burden, you can split their compensation. One half of the shareholder-employee's compensation will be a traditional salary, and the other half will be dividends. Make sure that the salary reasonably compensates the person for their work or else you may face an IRS challenge.

Minimum Employee Requirements for Corporations

Contrary to common belief, a corporation does not need multiple people to operate. In most states, a single individual can serve as the sole director, shareholder, and officer of a corporation. This means a corporation can be legally formed and maintained with zero employees, especially during its early stages.

However, if the corporation does hire workers, they must be appropriately classified as employees or independent contractors, each of which comes with different tax and reporting obligations. For example, employees require payroll withholding and benefits compliance, while independent contractors do not.

States differ in terms of structure requirements. While Delaware allows one person to serve all corporate roles, other states may impose slightly different rules regarding board structure or reporting obligations. Regardless of the state, none mandate a minimum number of employees to form or operate a corporation.

Must Your Corporation Pay Salaries?

After forming your corporation, you are not required to hire employees, which also means you aren't required to pay salaries. As long as your Secretary of State has your Articles of Incorporation and you are maintaining your corporation's Good Standing, your corporation will legally exist.

If your corporation is conducting business, however, the IRS requires your business to have a representative that exercises the company's rights. This person must receive compensation for their work, and this compensation would count as a salary and make the company representative an employee.

There are multiple factors to consider when trying to determine whether your corporation should hire employees:

  • Legal Authority: The laws of the state where you form your corporation govern how you can run your business. As distinct legal entities, corporations have a variety of legal rights, including the ability to hire employees. This means that a corporation can have zero employees or can hire hundreds, or even thousands, of people.
  • Existence in Perpetuity: A corporation exists once it has filed the Articles of Incorporation. Until a business has filed this document, it is not treated as a corporation, even if it is acting like one. Corporations exist until the filing of Articles of Dissolution and until formation documents are no longer kept with the state.
  • Withdrawal of Ownership: In the early stages of a corporation, owners will commonly work within the business until they can hire employees. Although owners can draw a salary, they are not required to, and they can work for the business for free. It is possible, however, for owners to take dividends or withdrawals as compensation and to avoid payroll taxes. This practice, unfortunately, may cause problems with the IRS, even though it is legal.

The 60/40 rule is something you should make sure you understand when it comes to corporate employees. The IRS wants to be certain that it receives all required payroll taxes. If corporations were legally allowed to define all payments as dividends, it would drastically reduce the payroll taxes collected by the IRS.

While corporations can function perfectly well without paying any salaries, someone is doing the work of running the business, and the IRS considers these people employees. The 60/40 rule guarantees that the IRS will be able to collect some payroll taxes from corporations run by their owners. If the owners run a corporation and receive dividends instead of a normal salary, the IRS considers 40 percent of this money a dividend and the remaining 60 percent a salary.

How Many Employees Does a Corporation Have on Average?

The number of employees a corporation has varies widely based on industry, size, and business goals. A small closely held corporation may have no employees beyond its owner-operator, while larger corporations may employ hundreds or thousands.

There’s no legal minimum or average, but here are general observations:

  • Solo corporations: Often have zero employees; the owner fulfills all roles.
  • Small businesses (1–10 employees): May have a few administrative or operational staff.
  • Mid-size corporations (10–250 employees): Typically involve structured departments like HR, finance, and marketing.
  • Large corporations (250+ employees): Can span multiple locations with complex hierarchies.

In many cases, corporate employee numbers shift over time as the business scales. Hiring is based on operational demand rather than legal mandate.

How the IRS and State Laws Define Employees

When determining how many employees a corporation has, it's important to understand how the IRS and state agencies define “employee.” Factors include:

  • Control test: If the corporation controls how, when, and where the person works, that person is likely an employee.
  • Wages vs. dividends: The IRS scrutinizes shareholder-employees who take large dividends but little or no salary. A “reasonable compensation” standard is enforced to ensure payroll taxes are properly paid.
  • Part-time and temporary roles: These individuals still count as employees if the corporation exerts control over their work.

Corporations should maintain accurate employee records and use IRS Form W-2 for each employee. Misclassification can lead to audits and penalties.

Common Employee Classifications Within Corporations

A corporation may engage different types of workers, and the way these individuals are counted and taxed can vary. Common classifications include:

  • Full-time employees: Work 30+ hours/week and usually receive benefits.
  • Part-time employees: Work fewer hours with limited benefits.
  • Temporary employees: Hired for a specific project or time period.
  • Independent contractors: Provide services under a contract but are not considered employees under IRS rules.
  • Shareholder-employees: Common in S corporations, where owners also work for the business and draw both salaries and dividends.

While determining “how many employees does a corporation have,” it's crucial to distinguish among these categories for legal and tax compliance.

Tracking and Reporting the Number of Corporate Employees

Several methods are used to determine and report how many employees a corporation has:

  • IRS Filings: Corporations must file Form W-3 and distribute W-2s annually, summarizing employee wages and taxes.
  • State Payroll Records: States may require quarterly reports on employee headcounts for unemployment insurance purposes.
  • Industry Databases: Publicly available databases like SEC filings or business registries may indicate employee numbers.
  • LinkedIn and Company Websites: Often reflect headcount approximations, especially for larger corporations.
  • Data Aggregators: Platforms like Dun & Bradstreet or business intelligence tools may estimate or list reported employee numbers.

If you’re forming a corporation or scaling operations, keeping clean records of all employees—full-time, part-time, and contractual—helps ensure regulatory compliance and accurate business planning.

Frequently Asked Questions

1. Does a corporation have to have employees? No. A corporation is not legally required to hire employees. It can operate with a single owner who serves as the director, officer, and shareholder.

2. How many employees does a corporation typically have? There is no fixed number. Corporations can have zero employees or thousands, depending on their size and operational needs.

3. Can one person run a corporation? Yes. Many states allow one person to serve as the sole director, officer, and shareholder of a corporation.

4. How are shareholder-employees treated for tax purposes? If shareholders work for the corporation, the IRS requires they receive a reasonable salary, which is subject to payroll taxes.

5. How can I track the number of employees in a corporation? You can check public filings, IRS forms (like W-2 summaries), or use business databases and platforms like LinkedIn or Dun & Bradstreet.

If you need help answering does a corporation have to have employees, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.