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We (myself & spouse - no other employees) are owners of S-Corp and planning to run quarterly payroll. It seems some states have mandatory labor laws to have the payroll run every week or bi-weekly etc., based on employee classification.

I have two questions:

  1. As a S-corp owner, what category we might fall into (like exempt/non-exempt or this is not applicable for owners)?

  2. Does Virginia allow to run quarterly payroll for S-corp owners (no other employees works for this S-corp)

Appreciate any guidance!

mhoran_psprep
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kosa
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    This seems to be a question asking for an interpretation of labour laws. Not sure that it fits in the "Personal Finance" category. – Greg Schmidt Jun 13 '22 at 13:34
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    I hope you are not planning on doing payroll yourself. It is very complex and there are companies that do this for you at a reasonable price (e.g., Gusto). – minou Jun 13 '22 at 13:39
  • @googlecloudsucks I am not planning and about to sign up to Gusto. – kosa Jun 13 '22 at 13:48
  • @GregSchmidt I couldn't find any other sub exchange which fit this question, sorry if it is out of scope. Thanks! – kosa Jun 13 '22 at 13:49
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    That's a question to a local lawyer/CPA, really. You can't rely on any advice you get here and penalties for non-compliance are very very steep. – littleadv Jun 13 '22 at 16:01
  • If you are the only two employees, why not just do what appears to be the requirement? – DJClayworth Jun 13 '22 at 16:26
  • "why not just do what appears to be the requirement?" - you mean run payroll bi-weekly? @DJClayworth the problem is, our income might not be consistent every month. We might have to run "different amount" as payroll each month. – kosa Jun 13 '22 at 16:54
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    @kosa If that's true for biweekly pay it's going to be true for monthly or quarterly pay. How about you run regular pay biweekly for an amount you know you are going to get, and then add a bonus every quarter if you need to pay yourselves more. – DJClayworth Jun 13 '22 at 17:31
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    You can do biweekly payroll for hourly employees, why is it a problem? – littleadv Jun 13 '22 at 20:40
  • @DJClayworth true it is a problem even for quarterly. The Bonus idea is something interesting, will check with CPA. Thanks! – kosa Jun 14 '22 at 15:05
  • @littleadv the problem is, "our income might NOT be consistent every month. We might have to run "different amount" each payroll" – kosa Jun 14 '22 at 15:06
  • @kosa that's a statement of a fact, why is it a problem? – littleadv Jun 14 '22 at 16:48
  • @littleadv some months, even years, there may not be enough income to pay the owners at all. – TTT Jun 14 '22 at 16:56
  • @TTT so? Some months, even years, hourly employees will have no hours at all. – littleadv Jun 14 '22 at 17:43
  • @littleadv there are no hourly employees. Is it possible you misread the question? The question is whether the 2 owners, which are the only employees of the company, can pay themselves less often than the frequencies specified in the Virginia law (which my interpretation is that it doesn't apply to the owners so they can pay themselves whenever they want to). – TTT Jun 14 '22 at 18:18
  • @TTT I understand the question. The OP explained their reasoning as "we're paid based on the actual work, not a fixed pay", that's the definition of hourly employee. Owners or not, that's what they are. – littleadv Jun 14 '22 at 18:22
  • @littleadv Did OP say that somewhere? (I can't find it.) But even so, hourly or not, it shouldn't apply to the owners, based on the info I showed in the answer. (Does it ever make sense for owners to be forced to pay themselves on a specific frequency? I can't fathom it...) – TTT Jun 14 '22 at 18:32

1 Answers1

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The VWPA (Virginia Wage Payment Act) does not apply to payroll of executives:

A. All employers operating a business or engaging an individual to perform domestic service shall establish regular pay periods and rates of pay for employees except executive personnel.

Side Note: even if it this wasn't the case, employees are the ones to report when they believe they are not getting paid at the proper frequency, so (I'm guessing) you'd have to tell on yourself in order to be flagged for it.

Disclaimer: IANAL. I approached this question with the assumption that labor laws dictating pay frequency don't make sense for owners, since you may not even have the funds available to pay yourself regularly. Obviously laws may vary by state, but it doesn't seem proper that any State could force owners of a company to take on debt just to pay themselves. I then found supporting evidence of my belief. During the search I also found a site which seemed to contradict my belief, though, I decided the Virginia state website was more trustworthy.

As an S-Corp owner in IL for many years, some years I paid myself monthly, other years I paid myself just once on Dec 31, and other years not at all. Regardless of how often you pay yourself, for S-Corps specifically, if you take distributions, you should pay yourself a reasonable salary also, for the job you are performing as owner. This means if you don't have enough funds to first cover a reasonable salary, you shouldn't be taking distributions either.

TTT
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  • Thank you for the comprehensive answer! – kosa Jun 14 '22 at 21:03
  • Thank you for the comprehensive answer! I am willing to take the salary more and less distributions (I know this make me pay more tax, but I want to have the ability to put more money towards savings, so I am willing to pay the taxes now). – kosa Jun 15 '22 at 15:04
  • @kosa note that the salary vs distribution debate for S-Corps is mostly focused on legally reducing your FICA taxes. Since the owner gets to decide the ratio themselves, there is incentive to keep salary low and distributions high, which is why the IRS uses the wording of "reasonable salary", in other words, how much you would have to pay someone else (who has no ownership stake) to do the job you're doing for the company. Here's an answer that demonstrates the math in more detail. (The comments to that answer may be interesting as well.) – TTT Jun 15 '22 at 15:46