Do I have to pay myself minimum wage?

[retailjack]

I'm embarrassed to ask this question but it's to resolve something a friend of mine was adamant about. I own a little gift shop that I started about 6 months ago and I have 3 employees including myself. It's still getting established so there is not enough money to pay myself yet. My employees are getting paid. My friend said that I have to pay myself at least minimum wage and that I can't work for free and that it's the law or so he's convinced himself. I can't find anything about this online and it sounds ludicrous. Can't I just pay myself from the profits? Why would I have to pay myself the minimum wage? It's not like I am going to sue myself for failure to pay minimum wage. I have met other owners who forego any kind of formal compensation but my friend say those folks are breaking the law. Sounds dumb I know but maybe someone can settle this for me once and for all?

[Blue Hen]

You do not have to pay yourself minimum wage. Several entities like LLCs are flow-through, meaning the profit simply passes down as your personal earnings. And plenty of LLC members out there do not earn minimum wage or any wage, in the instance where there is a net loss. That is the risk you take as an owner. I'm trying to think of what your friend must have confused his belief with but I can't come up with anything.

[Fulcrum]

Ain't no such thing as a minimum wage for a business owner.

With that said, it is a good idea to pay yourself something that resembles a salary, even if it is just on paper and tracked as deferred. It will help you keep a more accurate measure of the health of your business.

[retailjack]

Thank you !!!!

[tallen]

Depends on how your business is legally organized -- if your business is incorporated, you have to treat yourself as an employee of the corporation, and provide "reasonable" compensation for your labors on behalf of the corporation. Note that reasonable compensation might not necessarily have to mean cash payments, but could perhaps mean accrual of a debt (something to discuss with your accountant). If on the other hand you are a sole proprietor, you and the business are one and the same, so there is no paying yourself (just "draws" from the business accounts to your personal account). If on the third hand your business is an LLC, it may depend on how you've chosen to be treated for tax purposes -- LLC's are "dis-regarded" entities as far as the IRS is concerned, which considers them as sole proprietorships (if single member) or partnerships (if multiple members) unless the LLC has "elected" to be treated as a S-corp....