Payroll for Small Accounting Firms: What Your Setup Needs to Cover

Small accounting firms run payroll on two separate tracks: owner compensation and staff payroll. Each track has its own requirements, and both depend on decisions that start with your entity structure.

You pay yourself one of three ways: owner draws, a reasonable salary plus distributions, or guaranteed payments. How you classify each role of your staff determines the second track.

Your pay schedules, your filings, and your system follow.

SurePayroll® By Paychex is built for small businesses running lean.

How your entity structure determines how you pay yourself

Your tax election matters as much as your entity when it comes to compensating yourself, according to the IRS. Only one of the three runs through payroll.

Sole proprietorship and single-member LLC. You take owner draws. No salary, withholding or W-2, and you pay self-employment tax on net profit through quarterly estimated payments. You start processing payroll when you hire.

S corporation election, whatever your entity. If you elect S corporation status and perform services for the firm, you pay yourself a reasonable salary for those services and take the remaining profit as distributions. Only the salary runs through payroll. The reasonable salary is required by IRS. The IRS expects you to pay it on a regular schedule throughout the year. You generally take a reasonable salary through payroll and additional owner distributions outside payroll.

Partnership and multi-member LLC. You take guaranteed payments, draws, or both, and none of them are wages. You do not withhold payroll taxes on them. You report guaranteed payments on Schedule K-1, and you pay self-employment tax on your distributive share including those payments. Guaranteed payments do not run through payroll.  

A note on PC and PLLC. If you’re a CPA, some states require you to practice through a professional corporation or a professional limited liability company. Your attorney and your tax advisor can review which entity fits; check your state board directly on the requirements. Once the entity exists, your payroll obligations follow your tax election, not your license structure.

Setting your reasonable salary is your next decision. The standard is what a similar employer would pay someone else to perform the same services, which makes it a judgment call against comparable pay rather than a formula. Read how to determine reasonable compensation for your S-corp for more information.  

What your firm’s staff structure means for payroll system

Your first worker starts the second track. A part-time bookkeeper, a seasonal preparer, an admin, and a project paraprofessional each raise the same questions in a different order: how you classify the role, whether you owe overtime on it, and what schedule you pay it on.

Employee or independent contractor. You determine that from the working relationship, not from the title or what you and the worker would prefer. And you may need to evaluate it more than once, because different federal and state agencies apply different standards for different purposes.

The IRS applies a common-law control test, which governs withholding and employment tax filing. The Department of Labor applies an economic reality test under the Fair Labor Standards Act (FLSA), which governs minimum wage and overtime. Many states apply a stricter ABC test for their own wage and unemployment rules.

Exempt or non-exempt. Salaried does not mean exempt, and no accounting role is exempt based on title alone. Run the FLSA duties test on each one.

• Bookkeepers are generally non-exempt. Bookkeeping is a trained skill rather than a field requiring an advanced specialized degree, so neither the professional nor the administrative exemption applies without a full duties analysis.

• Administrative and front-office staff are typically non-exempt. The administrative exemption asks for discretion and independent judgment on matters of significance, and routine scheduling and document management do not reach it.

• Unlicensed staff accountants are frequently non-exempt, though classification depends on duties and job requirements.

• A licensed, salaried, non-owner CPA is typically exempt under the learned professional standard, but you have to meet both the salary basis test and the duties test. Attorneys and physicians are typically exempt from the salary requirement; CPAs typically aren't.

Worker misclassification is common. Up to 30% of employers misclassify at least some workers, according to research commissioned by the Department of Labor by the Economic Policy Institute.  

Overtime follows classification. Non-exempt means you track hours and pay overtime by workweek. Each workweek stands on its own, so a heavy week doesn't offset a light week.

A W-2 hire triggers registrations that a contractor doesn’t. Paying independent contractors generally doesn’t create employer payroll-tax registration. Hiring a W-2 employee does. You open your state withholding and unemployment insurance accounts yourself, generally before the first paycheck rather than after, so you or your payroll service can make deposits and tax filings.

Workers’ compensation starts at the same point. Many states require coverage as soon as you hire your first employee, though requirements vary by state. Verify your state’s rule.

Your salary and your staff’s pay can run on different schedules. A monthly or semimonthly active owner-employee salary alongside biweekly staff payroll is an acceptable structure. Each schedule stays consistent, and your setup carries both without a workaround.

The payroll variables specific to accounting firms

Your busiest weeks land in a season. Your revenue arrives unevenly. Your staff may work from more than one state.

Your overtime peaks more than once. April 15 is the peak you plan for. September and October carry the extensions from the March 15 business deadline, and year-end bookkeeping and W-2 prep can push a third peak into late December. Your payroll system or payroll software should handle all three.

A tax-season bonus can change your overtime math. If you pay a non-exempt employee a bonus tied to hours worked or to performance, that bonus may need to be included in the calculation of the regular rate that determines the overtime pay owed for workweek. Decide how you’ll handle it when you set the bonus, not when you run the payroll.

Uneven collections don’t change your salary obligation. Variable firm revenue does not eliminate the need for supportable reasonable compensation.

One employee who lives or works across a state line changes your registrations. You register as an employer in that state, open a state unemployment insurance account, and check for local tax layers. Nine states do not have income tax; the rest require registration for withholding. Some states and territories, such as California, Colorado, Nevada, and Oregon, add daily overtime thresholds at 8 or 12 hours, which lands squarely on a tax-season schedule.

Your firm’s records stay separate from your clients’. If you run payroll for clients, you’re an employer in one role and a service provider in the other. Your own W-2s, filings, and pay history belong in an account that never touches client payroll records, client tax IDs, or client funding credentials.  

What your accounting firm payroll setup needs to carry

Two payroll tracks. An S-corp salary runs through payroll, distributions do not. If you’re operating as an single or multi member LLC, your owners draw or guaranteed payments are not part of the payroll process. You need the staff side running on its schedule without forcing a workaround on yours.

Off-cycle payroll. Your season generates bonuses, corrections, and adjustments that don't wait for the next regular run. You'll want off-cycle and unlimited payroll runs rather than a cap you have to plan around.

Mixed pay on the staff side. A salaried CPA, an hourly bookkeeper, and an administrative employee can each sit on a different pay rate, and you pay contractors without withholding taxes. That's multiple pay schedules and contractor payments from one account, rather than separate processes.

Multi-state payroll. One employee across a state line can add a state registration, a withholding requirement, and an unemployment insurance account. Confirm whether multi-state is included in what you're looking at or priced separately.

Separation from client payroll. If you run payroll for clients, your firm's records stay distinct from client payroll environments. You'll also want payroll reporting you can pull for your own filings without going near client data.

SurePayroll processes pay for staff and independent contractors from one account, with unlimited off-cycle payroll runs when you need them. Two-day direct deposit is included; expedited and same-day direct deposit are available for an additional fee.

When it makes sense to offer payroll as a client service

As an accounting professional, you already hold most of what client payroll requires: the client relationships, the financial data, and a recurring engagement model. You'd bill it year-round, against a book that peaks with the tax filing calendar.

It's its own service line, with its own set-up and engagement terms. Once your own payroll runs the way you want, you'll know the work from the inside.

With SurePayroll, you can process payroll for yourself and your team; and offer payroll services to your clients under your name through the SurePayroll Partner Program.  

Build the payroll foundation your firm needs

You know what your firm requires. A payroll setup either carries both tracks or leaves you covering the difference by hand.

SurePayroll automates payroll processing, files payroll taxes, and supports a mixed team of W-2 employees and 1099 contractors in one system.  

See what it costs for a business your size.