Is it illegal for the owner of a company to claim a friend as an employee and pay her a salary over a long period of time without her ever working for the company?

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Is it illegal for the owner of a company to claim a friend as an employee and pay her a salary over a long period of time without her ever working for the company?

Asked on November 20, 2011 under Employment Labor Law, Missouri

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

It's not illegal, in the sense that the owner of a company may 1) determine who to employ (friends or not) and 2) may direct the company to make payments to anyone the owner chooses.

If the alleged "employee" does not actually do any work or provide any value, then it might not be possible for the company to claim the salary as a business expenses--to be deducted as a business expense, it must serve a business purpose. So there could be tax consequences from this action, but the owner of the company could choose to risk or face those consequences and direct the company to make payment.


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