Variable Employee Payment

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^^vampire^^

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I just wanted to get some feedback on something.

Lets say I start a business, and especially in the beginning it only makes a few grand monthly. After catering for taxes etc on turnover, would I be allowed to pay the balance of cash out as a salary to myself monthly as an employee or would that not be allowed? Obviously when the business grew the my salary would be set in stone but until that point is it possible to have a variable salary?
 
Does it have to be a salary? As the owner you can add and withdraw from the equity and note it in your accountancy.
There are other ways like sales commission etc as well. It all depends on the circumstance. Its probably best to speak to an accountant.
 
It depends on the legal nature of your business. Are you planning on operating as a sole proprietor or a limited company (Pty Ltd)?
 
i am glad someone asked this question. I have registered my company and I am freelancing, I am still unclear how I should remunerate myself from the money the company makes.

- I pay Dropbox under company.
- I started using AA to calculate petrol claims against company when doing deliveries.
 
Not idea about PTY or sole proprietors, but when we started trading as cc, we did exactly that, paid whatever monies was left as salaries to ourselves, with some spare cash to buy inventory and cover utilities and what not.
 
^^vampire^^ said:
I just wanted to get some feedback on something.

Lets say I start a business, and especially in the beginning it only makes a few grand monthly. After catering for taxes etc on turnover, would I be allowed to pay the balance of cash out as a salary to myself monthly as an employee or would that not be allowed? Obviously when the business grew the my salary would be set in stone but until that point is it possible to have a variable salary?
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There are a couple of other aspects to consider: are you the only shareholder and employee of the company, is your constraint cash or revenue, when do you expect to make a profit, what expenses are you pushing through the company, etc.

If you can, do not take a variable salary just because the company is not profitable yet. Push as much expenses through the company, without dodgy maneuvers, including a sensible salary for you (even if you only get paid a portion of your salary at the end of the month, you want to reflect is a liability so you can offset it in future when the big bucks are rolling in). It is OK if your company makes an accounting loss in the beginning, as long as you have the necessary cashflow to continue operating and building, as you will minimize your tax liability. Not necessarily the right answer for your situation though as you should think about all implications and get decent advice if unsure.
 
If you have a pty ltd you can also pay yourself a dividend from your left over profit instead of a salary.
 
Yes, you can pay yourself the balance as a salary.

The difference comes in on how you are taxed on the money.

In the case where you can account for corporate expenses - these MAY be tax deductible, while your salary is taxed at the rate applicable - allowances and the like are sin taxes and taxed at a higher rate.

All and any earnings will attract tax.
 
Thanks for the replies, will probably go the company route. I was mostly worried that SARS might have an issue that I would possibly be the soul employee and that the salary changes every month.
 
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