Owner pay supported by the work you actually do.
Salary and distributions should follow a documented analysis of the shareholder’s services and the business’s economics. AE Tax Advisors helps S-corporation owners organize their responsibilities, comparable compensation evidence, payroll records, and distribution history so a compensation decision can be implemented consistently and explained clearly.
Start with the decision that matters.
Who this is for
S-corporation shareholder-employees whose responsibilities, earnings, staffing, or payroll practices have changed, including owners preparing their first full payroll year.
When to begin
Distributions have increased, the owner has changed roles, or payroll was set using a percentage rule without a documented assessment of services.
The question we help you work through
What compensation is supportable for the services performed, and how should payroll, benefits, and distributions be coordinated prospectively?
A disciplined review with a practical handoff.
Describe the owner’s roles
Separate technical work, sales, management, administration, and supervision. Document the time and responsibility attached to each role, including work that does not directly generate a customer invoice.
Understand how revenue is produced
Distinguish the contribution of the shareholder’s labor from employees, capital, and equipment. The owner’s personal services and management responsibilities both belong in the assessment.
Evaluate comparison evidence
Identify relevant compensation comparisons and explain their limits. Geography, experience, hours, responsibility, and business circumstances affect how useful a benchmark is.
Reconcile payroll and distributions
Compare wages, benefits, reimbursements, and owner draws with the proposed approach. Flag historical inconsistencies separately from changes that can be implemented in current payroll.
Document and monitor the decision
Prepare a record of the facts, assumptions, and coordination items agreed in scope. Revisit the analysis when the owner’s duties or the business’s economics materially change.
Bring the context. We will define the next step.
Start with a short description of the decision, the people and entities involved, and the date by which you need an answer. These records help establish whether the work is ready for analysis:
- Owner job descriptions, time allocation, training, and experience
- Current and prior payroll reports, W-2s, benefits, and distributions
- Financial statements and staffing or contractor information
- Existing compensation studies, agreements, and payroll-provider details
Do not send tax returns, account numbers, or other sensitive records through a general inquiry. Arrange approved client-portal access before providing documents.
Agree on the scope, deliverables, and responsibilities.
Scope the work
The consultation should establish the entities and periods covered, the analysis required, available records, proposed deliverables, and coordination with your existing advisers. The signed engagement determines what AE will provide.
Define the handoff
Confirm who implements each recommendation and who reports it on the return. Legal drafting, valuation, engineering, payroll processing, and filing work should be expressly included or assigned separately.
Understand fees and timing
Review AE’s published pricing as a starting point, then confirm the applicable fee and any separate work in writing. Delivery timing depends on the agreed scope, usable records, and review requirements.
Evaluate the result honestly
A review may identify a useful action, a documentation gap, or a reason to retain the current approach. Any financial comparison needs stated assumptions and a clear distinction between deductions, tax deferral, and realized savings.
Questions before you engage.
Is there a standard salary-to-distribution ratio?
No universal percentage resolves reasonable compensation. The services performed and relevant evidence matter.
Does this include running payroll?
Payroll processing and historical corrections should be identified separately in the engagement scope. The analysis needs a defined handoff to whoever operates payroll.
Continue with the right review.
Primary reference
IRS: S corporation compensation. This reference explains the underlying topic; eligibility and treatment depend on the applicable period and facts.
Published by AE Tax Advisors · Updated October 10, 2026. General service information; a recommendation requires review of your circumstances.