How to Automate S-Corp Payroll as an Owner-Employee

As an S-corporation owner-employee, you can automate your S-corp payroll processing in two steps.

First, you process your salary in payroll software that calculates your payroll taxes and, on a plan that includes payroll tax deposits and filings, deposits and files them. Then, if available, you set up auto payroll so your consistent salary runs on schedule. At both steps, you remain responsible for your reasonable salary level, your distributions, the cash in your business account, and your year-end review.

S-corp owner-employees can process payroll and schedule consistent salary runs with SurePayroll® By Paychex.

What's the difference between payroll software and auto payroll?

Payroll software does the tax work of payroll processing, and auto payroll is a feature inside some payroll software that processes a consistent salary on a schedule you set. You can use them together, but they do different jobs.

• Payroll software calculates the taxes on your wages, pays your net wages by direct deposit, and, on a plan that includes payroll tax deposits and filings, makes your tax deposits and files your payroll returns.
• Auto payroll changes how you process your payroll run, not what's in it. Once you set it up, auto payroll processes your salary on your pay schedule after a reminder, so you don't approve it each period. It's best suited to pay that doesn't change. Not every payroll provider offers it.

If your pay varies, you can approve each run yourself instead, and manual payroll vs. automated payroll compares the two options.

Step 1: Use payroll software to process your S-corp salary

Based on the information you enter, each payroll run calculates your employee and employer payroll taxes and pays your net wages by direct deposit. The taxes calculated with each run generally include federal and state income tax withholding, Social Security and Medicare (FICA tax), and federal and state unemployment taxes. You enter your state withholding and unemployment account details, and the software applies them each run.

For example, if you pay yourself a $6,000 monthly salary, the FICA tax rates for Social Security (6.2%) and Medicare (1.45%) come to $459 withheld from your pay, and your S-corp pays a matching $459, before income tax withholding (IRS Publication 15; IRS Topic 751).

Tax deposits run on their own calendar. Your S-corp makes federal employment tax deposits based on its IRS deposit schedule, not based on its pay frequency. New employers are generally monthly depositors (IRS Publication 15). After that, the IRS lookback period sets the schedule: $50,000 or less in employment taxes for the lookback period means monthly, and more than $50,000 means semiweekly (Instructions for Form 941). State payroll tax deposits follow your state's own schedule, and your filings follow a separate schedule:

• Quarterly: Generally, Form 941, Employer's Quarterly Federal Tax Return, plus your state payroll returns
• Annually: Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return; Form W-2, Wage and Tax Statement; and Form W-3, Transmittal of Wage and Tax Statements

Confirm that your payroll software plan files and pays your payroll taxes. A plan that includes payroll tax deposits and filings does, while some plans calculate payroll but leave tax filings and tax payments to you.

If you're still comparing providers, what to look for in payroll software for an S-corp covers the features to check. If you're deciding between running payroll yourself and handing it off, outsourced payroll vs. payroll software compares the two for solo S-corp owners.

Step 2: Use auto payroll to run your consistent S-corp salary on schedule

Once you run your salary through payroll software, you can set up auto payroll to process it each period. Before your first run, check four things in the setting:

1. The approval date: the date your scheduled run is tied to, based on your pay schedule
2. The reminder: whether you're notified before that date
3. The change cutoff: how late you can edit the run
4. The confirmation: whether you're notified once the run is submitted

Make the reminder your review point. When it arrives, confirm the salary amount and confirm your business account holds enough cash for the debit. If your salary hasn't changed and your account still covers the debit, you leave the run as is. If your pay varies from period to period, a review-and-approve run may be a better fit.

Auto payroll follows the pay frequency you choose. Choosing your S-corp owner payroll frequency walks through the options.

With auto payroll in SurePayroll, you get an email reminder before your approval date and can make changes up to 24 hours before that date. You receive a confirmation email once your payroll has been submitted.

"I was easily able to get enrolled, run payroll and set up auto payroll within a week. It was a breeze as a first-timer!"

— Katherine, Trustpilot review

S-corp payroll tasks by pay period, quarter and year: what's automated and what you do

Here's how the work divides across payroll software, auto payroll, and you through the year.

The "Not applicable" cells show where auto payroll's role ends. For more on quarterly filings, see how to file quarterly payroll taxes as an S-corp.

Five S-corp payroll changes that mean you update auto payroll

When something changes, you update your scheduled payroll run before the change cutoff. These five changes call for it.

1. You change your salary. For example, you adjust it after a reasonable-compensation review. If you move from $6,000 to $6,500 a month, the new amount takes effect once you edit the scheduled run before the cutoff.
2. You file a new Form W-4. Your federal income tax withholding follows the W-4 on file. Update it in your payroll system so the next run withholds on the new elections.
3. You move or start working in another state. Your state withholding and unemployment accounts may change with your work location. Confirm your state setup before the next scheduled run.
4. You pay yourself a bonus. You update the scheduled payroll or process the bonus separately, depending on your payroll setup and the applicable withholding method. Decide before the cutoff so the bonus is included in the correct run with the applicable withholding.
5. You hire your first W-2 employee. Your payroll is no longer one consistent salary, so a review-and-approve run may fit better. Manual payroll vs. automated payroll covers how to choose.

SurePayroll plans include unlimited payroll runs, so you can process a bonus or other change in a separate run when your setup calls for it.

You decide your S-corp reasonable salary and distributions

The IRS rule is direct: S corporations must pay reasonable compensation to a shareholder-employee for services before non-wage distributions are made (IRS, S corporation compensation and medical insurance issues). You determine that salary. You run payroll on the amount you decide through your payroll software provider.

You weigh the factors the IRS lists, including your training and experience, your duties and responsibilities, the time and effort you devote to the business, and what comparable businesses pay for similar services. To apply them to your own number, see how to determine reasonable compensation for your S-corp.

Your S-corp pays your distributions outside payroll, and you record them separately from your salary so your bookkeeping shows which payments are wages. The IRS treats an officer's pay for services as wages, even when the officer is also a shareholder (IRS, S corporation employees, shareholders and corporate officers). How to set your S-corp salary and distribution split goes deeper, and you can hand basis tracking and the S-corp tax return to your CPA, if you work with one.

Year-end checklist for automated S-corp payroll

Before the final payroll run of the year, work through three items:

1. Confirm the year's salary against reasonable compensation. Compare what you paid yourself with your duties and what comparable businesses pay. If it needs to change, update the salary for the coming year, and talk with your CPA, if you work with one, about timing.
2. Provide qualifying health insurance premiums for a more-than-2% shareholder-employee. If your S-corp pays or reimburses qualifying premiums, provide the year's total in time for payroll to include it in your year-end records and Form W-2 (IRS, S corporation compensation and medical insurance issues).
3. Check your W-4 and state details for the coming year. Update your withholding elections and confirm your state accounts before the first run of the new year.

The fourth-quarter Form 941, Form 940, and Forms W-2 and W-3 are due January 31, or the next business day if January 31 falls on a weekend or federal holiday (IRS Publication 15; General Instructions for Forms W-2 and W-3). An employer instructed by the IRS to file Form 944 follows the annual filing schedule instead (Instructions for Form 944).

For the full list of year-end tasks, use the year-end payroll checklist for small business. If you haven't started paying yourself through payroll yet, starting S-corp payroll before the new year covers the timing.

"As a single-member S-Corp, I needed a simple and affordable payroll solution that I could manage, and so far, SurePayroll has worked just fine."

— Brian K., Better Business Bureau review

Automate your S-corp payroll with SurePayroll

SurePayroll calculates your payroll taxes with each run and files your quarterly and year-end payroll forms on a full-service plan. Auto payroll then processes your consistent salary on schedule, while you set the salary, review each reminder, and edit the run when something changes.

‍See SurePayroll for S-corps.