One of the fundamental decisions when establishing or managing a Limited Liability Partnership (LLP) in the UK is how to structure its membership. Many LLPs — especially in the professional services sector — adopt a two-tier model comprising equity partners and fixed share partners. But within this framework, confusion often arises between the roles of fixed share partners and salaried partners, with the terms frequently (and incorrectly) used interchangeably.
Understanding the distinction between these roles is crucial — not only for structuring partnerships effectively but also for ensuring compliance with employment and tax law. In this article, we break down the key differences between fixed share and salaried partners, and why these differences matter.
Employment Status: Member or Employee?
The most critical distinction lies in employment status.
- Fixed share partners are members of the LLP. They are not employees and should be registered as such at Companies House. As members, their rights are governed primarily by contract — usually through the LLP agreement, offer letter, or deed of adherence — rather than by employment law. While they have protection under certain worker rights (such as whistleblowing and anti-discrimination provisions), they do not benefit from full employee protections.
- Salaried partners, despite the title, are employees, not members. They are engaged under a contract of employment and are entitled to the full suite of employee rights — including protection from unfair dismissal and access to parental leave, sick pay, and other statutory benefits.
Voting Rights and Influence
Another key differentiator is involvement in decision-making.
- Salaried partners typically have little to no voting rights within the LLP. While they may be consulted on major issues, they are not generally part of the formal governance structure.
- Fixed share partners often have more involvement, though their exact voting rights depend on the LLP’s constitutional documents. Some LLPs operate on a “one member, one vote” basis, but more commonly, equity partners have enhanced voting power, with fixed share partners having limited or topic-specific voting rights.
Capital Contributions and Profit Sharing
- Salaried partners do not usually contribute capital to the LLP. They are paid a fixed salary, similar to other employees, and may receive a performance-based bonus — but they do not share in the LLP’s profits or assets.
- Fixed share partners, on the other hand, often contribute capital and receive a share of the LLP’s profits. While their income typically includes a fixed component (similar to a salary), it may also include a small equity stake or profit share — providing a hybrid between fixed income and partnership participation.
Tax Treatment
Tax status is another area where the two roles diverge significantly:
- Salaried partners, as employees, are taxed under the PAYE system. The LLP must deduct income tax and employee National Insurance contributions (NICs) at source and also pay employer’s NICs — now set at 15% following a recent increase.
- Fixed share partners are generally treated as self-employed — assuming the salaried members rules don’t apply. This means they manage their own tax affairs and are not subject to PAYE. LLPs often maintain a tax reserve account to help members meet their tax obligations.
The absence of employer NICs on profit shares makes fixed share partnership more tax-efficient for the LLP — but to avoid being treated as a “salaried member” under UK tax law, these partners often need to contribute significant capital to the firm.
Why It Matters
Understanding and correctly classifying fixed share vs salaried partners is not just a technicality — it affects everything from employment rights and tax treatment to governance and financial structure. It also has strategic implications for overseas businesses establishing a UK presence through LLPs, particularly given that the salaried members rules do not apply to non-UK LLPs, and such entities can benefit from cash-based accounting.
Whether you’re structuring a new LLP or reviewing your current framework, getting this distinction right is essential for legal compliance and operational efficiency.