Can I pay myself a wage as a sole trader?

Can I pay myself a wage as a sole trader?

What contributions are paid by the company’s salary

All workers are paid monthly for their work. A payroll is issued in which all the concepts are detailed and they receive the liquid amount to be received. But what about the self-employed? Can they have a salary?

The self-employed entrepreneur is indissolubly linked to his business. There is neither legally, nor fiscally, nor occupationally any difference between him and the company and the income and expenses of the activity belong entirely to the person. Therefore, the self-employed does not have a payroll and cannot be assigned a salary.

However, in order to guarantee the stability of the business, it is advisable to separate the economic part of the company from its owner, so although formally there is no system for this, it is advisable that the self-employed person establishes a fixed monthly salary. In this way he/she will be able to separate the money that he/she handles for his/her personal circumstances from the money that is destined to the business.

However, this remuneration is not deductible from the profits of the activity. The results of the activity are imputed entirely to the owner of the business and he will have to declare them in his IRPF, independently of the fact that only a part of them is destined to his personal use.

Pre-preferred corporate salary

Normally, these decisions are internal management decisions to better control profit sharing, especially when more than one partner is involved. However, this is a fundamental point that must be clear from the outset.

Read more  What pharmacy techs make the most?

Of course, this remuneration is a way of valuing the work and time that a person invests in the business to achieve its growth, understanding – at the same time – that it also affects the true results of the company.

Also, if one of the other partners works, but for a lesser amount of time, a salary can be set. The decision on the payment of remunerations will depend on the agreements between the parties and the obligations that are shared respectively. However, there are some restrictions in the law regarding the tax treatment of salaries and wages of shareholders or partners.

On the other hand, the amount of the payment must be “reasonable” according to the general situation of the company and the partner or shareholder must truly work in the company, a situation that must be proven in order to establish the existence of a direct labor relationship.

Entrepreneurial salary is quoted as self-employed

– Sole proprietors or partners must work effectively and permanently in the business or company. There may be more than one partner per partnership if each meets the requirements. They do not have to work full time.

The fact of paying the business salary to one of the partners does not give rise to an employment relationship, since there will be no relationship of subordination and dependence between the worker and the employer, since they are the same person. In this sense, it is not necessary to generate an employment contract containing the obligation to pay the amount chosen as corporate salary.

Read more  Can dealers waive doc fees?

It is different in the case of minority partners of the company (less than 50%) where the Labor Directorate has indicated that they could be considered dependent workers of the company and therefore be covered by the labor legislation.

Company salary pays unemployment insurance

Currently with the creation of the system “your company in one day” that has migrated to “desktop company” has begun to massify the creation of companies, either to separate income, seek partnerships, tax planning or simply to operate under another name, more and more people prefer to work with a company background, something that ARF Consultants recommend. But that will be a topic for another article that will be studied in the future by our company, what we are going to clarify now is something that affects all companies and that many entrepreneurs do not know, the difference between Retirements and Corporate Salary, to clarify and that entrepreneurs can understand what their option is.

As you can see, both systems can be convenient for your companies, but at the same time both can generate a bad result, everything will depend on each company, how it is formed, what tax system it has, what the partner requires and what it is looking for its future.

Some time ago the biggest barrier that existed was to be able to obtain financing to launch that business idea, today these barriers do not exist because you can access many options to finance a venture, through projects that you can apply for such as sercotec, Prodesal, Indap, Corfo among others…

Read more  How do I get a registration certificate in Spain?