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Myth: You Don't Need Payroll Until You Hire Employees

  • Writer: Miranda Kishel
    Miranda Kishel
  • Aug 15
  • 2 min read
Payroll

The Myth


Many self-employed business owners believe payroll is only necessary once they hire employees. Until then, they assume it’s just an unnecessary complication.


Why This Is Wrong


That assumption can create serious financial and compliance problems.


  • Owner compensation matters: If you operate as an S corporation, the IRS requires that you pay yourself “reasonable compensation” through payroll, not just owner draws. Ignoring this can trigger audits, penalties, and back taxes.

  • Contractor confusion: Misclassifying workers as contractors when they should be on payroll is one of the most common compliance mistakes. The IRS and state agencies are strict about this distinction.

  • Benefits and taxes: Payroll systems don’t just cut checks—they handle withholding, employer taxes, and reporting. Even if you’re the only person on payroll, you need a system to stay compliant and organized.

What Small Business Owners Should Understand Instead


Payroll is not just about paying “employees”—it’s about managing compensation in a structured, compliant way.


  • Self-employed owners with an S-Corp need payroll for themselves.

  • Businesses with part-time, seasonal, or family workers often need payroll sooner than expected.

  • Payroll systems can streamline tax filings, automate withholdings, and reduce the risk of costly errors.

Action Steps to Avoid This Payroll Myth


  • Assess your business structure: If you’re taxed as an S corporation, set up payroll for yourself right away.

  • Classify correctly: Review whether your workers meet IRS standards as employees vs. contractors.

  • Choose a payroll provider: Even if you only run payroll for yourself, using software or a service will keep you compliant and save you time.

  • Review annually: As your business grows, your payroll needs will evolve—make payroll part of your financial review process.

Bottom Line: Payroll isn’t just for “when you hire employees.” It’s a compliance tool, a tax tool, and a financial management tool. Don’t fall for one of the most common payroll myths—get ahead of it now.

Learn more about payroll solutions here: Payroll Guide

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