OT: minimum pay period for S-corp owner

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

Reply to
Mark Bole
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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.

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

Reply to
Jay-T

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.

Reply to
Haskel LaPort

"Haskel LaPort" wrote

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.

Reply to
paulthomascpa

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.

Reply to
Haskel LaPort

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

Reply to
Mark Bole

"Haskel LaPort" wrote

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.

Reply to
paulthomascpa

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.

Reply to
Haskel LaPort

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.

Reply to
Jay-T

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.

Reply to
Haskel LaPort

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