Defining reasonable compensation and creating an employment agreement for S-Corp owners
In order to figure reasonable compensation there are multiple factors to take into consideration. Some of them are:
- What is your experience and training
- What are your duties and responsibilities
- How much time and effort do you put in
- What are other people in the same line of work being paid
- How much do you pay your employees
- What is the timing and in what manner do you pay bonuses
- What are you taking for distributions
- How do I figure my hourly wage after I come up with a salary (salary / 2080 hours = hourly rate)
- How much can your business afford to pay you?
- Do you still need qualifying Social Security Quarters?
After answering these questions you should have a general idea of what your salary could be.
What is an Employment Agreement and why do I need one?
This is an agreement between you and your S-Corp defining what your salary will be, for the duties you perform. This form is necessary to be in compliance with the IRS guidance.
Need help with implementing a payroll plan?
We are here to help you. We may also need to do a tax estimate in order to help determine what your payroll amount should include. We can prepare all the necessary paperwork and file all the reports so you can focus on your business. Simply give us a call at ClearPath Advisors in Detroit Lakes, MN or Fargo, ND at 218-847-5225 or contact us and we will be happy to help guide you through the process.