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Why You Need to Put Yourself on Payroll as a Small Business Owner

Whether you’ve owned a small business for years or you are just getting started, adding yourself to payroll is a crucial step for long-term success.
Small business owner, setting up payroll

Pay yourself, first! 

As a small business owner, you likely have a never-ending to-do list. Though it’s easy to forget, one of the most important tasks is that you make sure you are paying yourself for all of your hard work. With business growth, it becomes necessary to set up procedures that will save you money and time. Most business owners start to think about payroll and HR processes once they hire their first employee. However, it's important to understand that you don’t have to wait for your first employee to set up payroll, and as a matter of fact, there are a number of reasons why you shouldn’t. 

If you have set up your business as an LLC (Limited Liability Company) and don’t have employees, you have quite a few options for paying yourself and calculating your income taxes. If you already have employees, click here to learn more. 

Rather than paying yourself with random withdrawals from your business bank account, here’s why you should consider setting up payroll:

  1. You will receive a steady paycheck, just as if you were an employee
  2. Have a consistent amount of pay each month, making it easier to budget for regular expenses that exist outside of your business 
  3. Direct deposits help cut down on trips to the bank and other administrative tasks 

Keep in mind

In order to set up a payroll system, your business must earn consistent revenue to cover your salary. You get to determine what your salary is, but it has to be in line with what someone doing the same work would typically be paid (also known as “reasonable compensation”). Make sure to look at your Profit & Loss Statements (P&L) and choose a salary based on how much net profit you’re making each month. If you were paying someone else for the work that you do, how much would you pay them? 

With payroll, you’ll now get paid through a system, but the good news is that you are still in control! You get to choose what system works best for you, how much you’ll be paid, and how often.

If you are set up as an S Corp, there are additional tax advantages. Instead of paying taxes on all business profits, as an S corp you would only pay those taxes on the salary you pay yourself (meaning you get to keep more money in the business). 

Ready for the next steps? 

Whether you intend to keep your business small or you are preparing to hire employees, setting up a payroll system is a crucial step for all business owners. And the good news is that you don’t have to do it alone! 

Service providers like ADP will handle the whole process for you and help set up a number of other services for your business. If you’re interested in learning more, send us an email at and we will connect you with our friends at ADP. You will receive a FREE consultation to discuss your business needs and 20% off whatever package you decide is the best fit for your business. 

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Photo provided by iStock Images

Posted: February 21, 2023