How you pay yourself from an LLC depends entirely on how the Internal Revenue Service taxes your business. If you run a standard single-member LLC, you are not considered an employee of your company. You pay yourself using an owner's draw, which is a simple transfer of funds from the business bank account to your personal bank account. If your LLC has elected to be taxed as an S corporation, the rules change completely. The IRS requires an S corporation shareholder-employee to take reasonable compensation for their services through a formal payroll system before taking any non-wage distributions. If you are forming a new LLC and need to secure your Employer Identification Number before setting up a payroll system, you can start with ZenBusiness's ADP payroll partnership to request an introduction to RUN Powered by ADP, a separate payroll service.

The Standard Single-Member LLC and the Owner's Draw

When you form a standard single-member LLC, the IRS treats the business as a disregarded entity for tax purposes. This means the LLC itself does not pay federal income taxes. Instead, all business profits and losses pass through directly to your personal tax return. Because the owner and the business are effectively the same tax entity, the IRS does not view you as an employee of your own company. You cannot pay yourself a W-2 salary in this setup.

To pay yourself from a standard single-member LLC, you take an owner's draw. Taking a draw is fundamentally a transfer of your own equity out of the business. You simply write a check from your business checking account and deposit it into your personal account, or you execute an electronic funds transfer. There is no formal payroll run required for an owner's draw. There are no payroll taxes withheld at the time of the transfer, and you do not generate a pay stub.

The draw itself is not what the IRS taxes. You are taxed on the total net profit of the LLC at the end of the year, regardless of how much money you actually transferred to your personal account. Keeping business and personal finances separate is vital here. A dedicated business bank account ensures you can accurately track your profits and clearly record every draw you take.

The S Corporation Election and Reasonable Compensation

An LLC can choose to change how it is taxed by making an S corporation election with the IRS. When an LLC elects S corporation status, the business becomes a distinct tax entity separate from the owner. If you work for the business, you become a shareholder-employee. This shifts your payment method from an informal draw to a formal payroll system.

The IRS mandates that S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made. This rule exists because wages are subject to employment taxes, while non-wage distributions generally are not. The IRS wants to ensure business owners are not avoiding employment taxes by taking all their compensation as distributions.

Setting a reasonable wage is a compliance requirement. The IRS actively monitors this and has the authority to reclassify payments made to shareholders from non-wage distributions to wages. If the IRS reclassifies your distributions, you may face unexpected tax liabilities and penalties. Once you establish a reasonable salary, you must pay yourself through a standard payroll system, withholding all appropriate federal and state taxes.

The Requirements to Run Formal Payroll

If your LLC elects S corporation status, or if you hire a separate employee, you must establish a formal payroll process. The absolute requirement for running payroll is an Employer Identification Number. You cannot run payroll without an EIN, as the IRS tracks all employment taxes back to this specific number. Once you have your EIN, you must gather specific documentation before issuing the first paycheck.

You need the employee's exact name and Social Security Number to enter on Form W-2 at the end of the year. Accurate records here prevent filing errors with the Social Security Administration. Next, you must ask all new employees to give you a signed Form W-4 when they start work. Make the form effective with the first wage payment. A completed W-4 remains in effect until the employee gives you a new one.

If an employee hands you a replacement Form W-4, you must act on it promptly. The IRS dictates that withholding based on the new form must begin no later than the start of the first payroll period ending on or after the 30th day from the date you received the replacement Form W-4.

Employment Eligibility and Record Retention

Beyond tax forms, employers have strict eligibility and recordkeeping duties. Form I-9 is required for everyone. All U.S. employers must properly complete Form I-9 for every individual they hire for employment in the United States. This confirms the worker is legally authorized to work in the country.

Once payroll is running, the federal government requires you to keep the paperwork. The Department of Labor mandates that FLSA payroll records are kept three years. Furthermore, the records that wage computations are based on, including time cards and wage rate tables, must be retained for two years.

State rules control how often you must issue those paychecks. Pay frequency is set by state law and varies widely. California requires wages at least twice per calendar month on days designated in advance. Colorado requires monthly payment schedules. Connecticut requires weekly payments unless a longer interval is approved by the labor commissioner. Employers should consult the relevant state labor office for official information regarding their specific location.

Worker Classification Rules

If you hire someone to help your LLC, you must determine if they are an employee or an independent contractor. Classification turns on control, not on a label or a contract. The IRS weighs three categories: behavioral control, financial control, and the type of relationship. There is no magic or set number of factors that makes the worker an employee or an independent contractor, and no one factor stands alone in making this determination.

Getting this classification wrong carries heavy consequences. Misclassification has a price. An employer who classifies an employee as an independent contractor without reasonable basis may be held liable for employment taxes for that worker.

If you are unsure about a worker's status, you can ask for an official ruling. Form SS-8 asks the IRS to determine status. However, this is not a fast process. The IRS notes it may take at least six months to receive a determination on your filing, meaning you must carefully evaluate the control factors yourself in the interim.

Payroll Software Options for an LLC

Handling tax withholding, state schedules, and reporting manually is difficult. Most single-member LLCs and S corporations use software to automate the process. Below is an alphabetical list of established payroll providers. This order is alphabetical rather than a ranking.

ADP

ADP is a massive global payroll processor that handles businesses of all sizes, from single-employee S corporations to enterprise corporations. The platform handles direct deposits, tax filings, and compliance tracking. ADP does not publish payroll pricing and quotes per business. To get a specific cost for your LLC, you must complete a consultation with their sales team.

Gusto

Gusto provides full-service payroll with a focus on modern user interfaces and benefit integrations. As of October 6, 2026, Gusto's Simple plan costs $49 per month plus $6 per person. The Plus plan is $80 per month plus $12 per person. The Premium plan costs $180 per month plus $22 per person.

OnPay

OnPay offers a single transparent tier for its payroll software, which includes unlimited monthly pay runs and automated tax filings. As of October 6, 2026, OnPay costs $49 per month plus $6 per worker. The public page quotes a start price of $55 per month, which represents the base fee plus one employee.

Patriot Software

Patriot Software is often a strong fit for a small LLC watching its initial budget, as it is cheaper at the very bottom end of the market. As of October 6, 2026, Patriot's Basic Payroll is $17 per month plus $4 per employee. The Full Service plan, where Patriot handles the tax filings, is $37 per month plus $5 per employee.

QuickBooks Payroll

QuickBooks Payroll integrates closely with the broader QuickBooks accounting ecosystem. As of October 6, 2026, the Workforce Payroll plus Simple Start bundle is $88 per month plus $6.50 per employee. The Essentials bundle is $125 per month plus $6.50 per employee. The Workforce Premium plus Plus package is $203 per month plus $10 per employee. Intuit often advertises a promotional rate of 50 percent off the base for three months, but that is not the ongoing price.

Square Payroll

Square Payroll is built to work seamlessly with Square's point-of-sale hardware, but it functions well as a standalone tool. It is particularly cost-effective if your LLC only utilizes independent contractors. As of October 6, 2026, Square Payroll costs $35 per month plus $6 per person. Their contractor-only plan is $6 per contractor per month with no base subscription fee.

SurePayroll

SurePayroll, a Paychex company, caters specifically to small businesses and household employers. As of October 6, 2026, pricing starts from $29 per month plus $7 per worker. A multi-state add-on is available for $9.99 per month, and their household payroll service starts at $39 per month.

ZenBusiness

ZenBusiness provides a central hub for business formation and compliance. If you are starting a new LLC, ZenBusiness is often the best place to begin because it handles the foundational steps you need before payroll can exist. As of October 6, 2026, the Starter plan is $0 plus state fees. The Pro plan is $199 and the Premium plan is $299. Pro and Premium renew at their annual prices. The EIN and operating agreement are included from Pro up and are $99 each on Starter. You can also add registered agent service for $199 per year, Money Pro bookkeeping for $30 per month, and a website for $129 per year.

ZenBusiness does not process payroll natively. Instead, it provides one place to set up and run the business, with payroll handled by a partner. ZenBusiness routes its customers to RUN Powered by ADP. You request the connection from the ZenBusiness dashboard, and an ADP representative follows up to discuss your pay schedule and provide a quote. Payroll itself is ADP's, quoted by ADP per business, and not included in any ZenBusiness plan price.

It is important to understand that ADP is a separate service with its own platform, its own billing, and its own support. The payroll processing is not integrated into the ZenBusiness dashboard. ZenBusiness customers may be eligible for promotional pricing on the ADP service, but the exact terms are confirmed during the ADP consultation.

Sources

This article provides general information and is not intended as legal, tax, or accounting advice; requirements vary by jurisdiction and are subject to change.