OT: minimum pay period for S-corp owner


M

Mark Bole

Not specific to QB, but I suspect some here might know...

When a state mandates minimum frequency of pay, such as every two weeks,
or monthly for management-types(*), does that apply to a 100% S-corp
owner paying himself his own wage? Or can an S-corp with no other
employees do a quarterly or even annual payroll?

(*) CA Labor Code Section 204

-Mark Bole
 
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H

Haskel LaPort

Jay-T said:
I am not an accountant or bookkeeper, and I do not actually KNOW the answer
but..., a friend of mine set up an S-Corp in Pennsylvania about 5 years
ago. It was set up with her as a 90% shareholder and each of her two
children as 5% shareholders. I don't exactly recall why it was done that
way, but that's what her CPA said she should do. The CPA also said that
the S-Corp could pay her and each of her two children as employees of the
S-Corp and they could be paid monthly. I asked if there was any problem
with that in terms of laws saying employees must be paid at least
bi-weekly, and the CPA said that it didn't matter for an S-Corp. He said
some people even have the S-Corp pay its shareholder/employees once a year
instead of monthly. I was at all of these meetings with the CPA and that's
what I heard first hand.

You could also try positng this question on alt.accounting if you want.

Hope this helps.

If the state mandates a minimum pay frequency then the same should apply to
all employees including Sub-S shareholder employee's. The state does not
want the business holding onto withholding and unemployment taxes. The state
wants their money now.
 
P

paulthomascpa

Haskel LaPort said:
If the state mandates a minimum pay frequency then the same should apply
to all employees including Sub-S shareholder employee's. The state does
not want the business holding onto withholding and unemployment taxes. The
state wants their money now.




I think it's more of not placing an undue burden on the employee by the
employer. I have a very hard time believing that the state would, or could,
force an employer to pay the employee/owner under the current economic
conditions. Times are tough, and forgoing payroll is often times one cost
saving and cash flow enhancing measure. Cash flow is tight? The owner
isn't paid. Everyone else, yes, you must pay them in a frequent manner. No
problems with that.
 
H

Haskel LaPort

paulthomascpa said:
I think it's more of not placing an undue burden on the employee by the
employer. I have a very hard time believing that the state would, or
could, force an employer to pay the employee/owner under the current
economic conditions. Times are tough, and forgoing payroll is often times
one cost saving and cash flow enhancing measure. Cash flow is tight? The
owner isn't paid. Everyone else, yes, you must pay them in a frequent
manner. No problems with that.

When I said the state wants their money now I was really referring to the
owner/employee. I have seen numerious cases were the IRS frowns upon
owner/employees geting the one single annual paycheck on 12/31.
 
M

Mark Bole

Haskel said:
When I said the state wants their money now I was really referring to
the owner/employee. I have seen numerious cases were the IRS frowns upon
owner/employees geting the one single annual paycheck on 12/31.
I appreciate the input from both of you, and can see where the more
often paid(*), the better for avoiding potential issues.

(*) or at least, paid a higher amount earlier in the year, or paid an
amount which is based on profit per pay period

-Mark Bole
 
P

paulthomascpa

Haskel LaPort said:
When I said the state wants their money now I was really referring to the
owner/employee. I have seen numerious cases were the IRS frowns upon
owner/employees geting the one single annual paycheck on 12/31.



If there is in fact, money being disbursed to the employee/owner throughout
the year, then some or all of that should be payroll as it's paid out.
Clearly the state or Feds are within the law to require or reclassify those
transactions.

But I hold firm that lacking any disbursements to the owner/employee, they
can not force a distribution and call it payroll for the sole sake of
obtaining tax deposits.

I have clients with serious cash flow issues these days, and they often
don't get a check, or it's paid once a month, or once a quarter, or in at
least one case, not at all this year. They'd rather not get paid and have a
business tomorrow than take a check today and not have a business tomorrow.
 
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H

Haskel LaPort

paulthomascpa said:
If there is in fact, money being disbursed to the employee/owner
throughout the year, then some or all of that should be payroll as it's
paid out. Clearly the state or Feds are within the law to require or
reclassify those transactions.

Paul, naturally the case above is what I am eluding to. I have personally
seen numerous instances where the owner/employee takes weekly loans out of
the business and the CPA partner in charge comes in and makes a journal
entry wiping out the loan and reporting it as wages on the final payroll of
the year.
 
J

Jay-T

I tried posting your question on the newsgroup called misc.legal on
12/22/2009. The subject heading I used is: California S-Corp pay period
laws for owner/shareholder "employee".

I think the response there by McGyver is the correct answer.
 
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Haskel LaPort

Jay-T said:
I tried posting your question on the newsgroup called misc.legal on
12/22/2009. The subject heading I used is: California S-Corp pay period
laws for owner/shareholder "employee".

I think the response there by McGyver is the correct answer.

Agreed. The most important thing to note from the thread is how many
individuals actually believe that Sub-S owners do not have to take a salary
and thus evade employment taxes.
 

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