Sporadic or unpredictable payroll?

May 2, 2016 12:30 PM

I've got a web development firm classified as a single-member LLC filing as S-Corp, and as such I pay myself a regular salary. It's just that for the past year I've been on sabbatical, and my salary has dropped to near zero.

Now that I'm back at work, and my company's earning income, I'm wondering what the best strategy to increase my salary is? Obviously, I can just bump it up to a fair market rate for my work, but since my company's income is a little sporadic right now, I don't want to start paying myself a wage the company can't afford over the next year.

Has anyone found themselves in this position (either as the company, employee, or both)? I'm keen to figure out a sensible way ahead.

P.S. And yes, I'll ask my CPA about this, but he's very busy and sometimes takes a while to get back to me.

posted by jacob to Work & Money (4 answers total)

Very low salary with intermittent bonuses to bump it when there is extra cash in the kitty is how I would be inclined to do it.
posted by DarlingBri at 12:32 PM on May 2, 2016

Best answer: I have a single-person S-Corp. My company's income is entirely derived from my billable hours. I pay myself payroll based on the hours I work rather than a full-time salary. For example, if I bill out to a client at $X for 20 hours for the week, I pay myself 50% of $X as an hourly rate for 20 hours that week. That covers tax obligations on both my part and the company's, and leaves a little extra in the operating budget for expenses. I can also pay myself out periodic bonuses should I need to.

The payroll service I use makes this very, very easy.
posted by bedhead at 12:37 PM on May 2, 2016 [5 favorites]

Best answer: It sounds like you don't manage your payroll yourself? I was in this situation and found it easy to stop/start my paycheck as needed through the payroll company's web portal. If I had to stick to the same number for awhile, I'd estimate minimum income for the year and pay based on that with a bonus or two closer to the end of the year to optimize income/tax situation.
posted by michaelh at 1:20 PM on May 2, 2016

I've had a single-person S-corp for 20+ years. I chose a salary level based on what my accountant suggested would be the "sweet spot" for social security payments down the line. That's around $30K/year for a single person, a bit higher for a married person. When there's sufficient money in the company account, I pay myself that salary and forego it if the bank account is a bit low.
posted by DrGail at 1:39 PM on May 2, 2016