Classify an employee as an owner and pay them owner's draws

For owners who take owner's draws and have a taxable salary

We currently don't have the ability to set up an owner to receive both a taxable salary and a non-taxed owner's draw. If you have an owner who is a W-2 employee, we recommend handling owner's draws outside of Gusto as we do not handle the taxes or filings for these distributions.

For owners who have benefits with Gusto

Owners who have benefits with Gusto must set up an employee account and classify the employee as an owner so they can participate in the company's benefits package. This setup and classification is required so that the owner can access benefits information and participate in annual open enrollment through their Gusto account. 

• Note: If the owner does not plan on participating in benefits, they do not need to complete this step.

Once an owner's draw is run, no deduction will appear on the paystub—owner's draws are pretax and the company is paying the full premium.  

Set a new employee up as an owner

1. Click the People section and select Team members.
2. Click Add a team member.
3. For "Team Member type", select Employee. 
4. For "Employee Type", select Owner's Draw.
   • Reminder: The company must be set up as a Sole Proprietorship or LLC in Gusto to set up owner's draws. If your business type was previously set up wrong, you can change your entity type. 
5. For Amount, add a default payment that the owner will withdraw per payroll, if applicable.
6. On the "Tax Details" page you'll be required to make a selection for withholdings, but this is just a placeholder as taxes will not be withheld on the Owner's Draw.
7. Click Save and Continue.

Set up an existing employee as a new owner

If an existing employee should have been classified as an owner during an earlier part of a calendar year, check out this article with more information on updating a shareholder's status.

1. Click the People section and select Team members.
2. Click the employees name.
3. Click edit under Compensation
4. For Employee Type, select Owner's Draw.
   • The company must be set up as a Sole Proprietorship or LLC in Gusto to set up owner's draws.
5. For Amount, add a default payment that the owner will withdraw per payroll, if applicable.
6. Select the Effective pay period for the new compensation.
7. Enter a Reason for change to note why this update is being made.
8. Click Save.

The owner's draw will appear in regular payroll and can be processed with the rest of your employees' payments.

For owners who take owner's draws and have a taxable salary

We currently don't have the ability to set up an owner to receive both a taxable salary and a non-taxed owner's draw. If you have an owner who is a W-2 employee, we recommend handling owner's draws outside of your Gusto account as we do not handle the taxes or filings for these distributions.

Make an owner's draw during regular payroll runs

1. Click the Payroll section and select Run payroll.
2. Click Run Regular Payroll.
3. Next to the owner, view their default owner's draw amount or click Owner's Draw (OD) to enter a new dollar amount.
4. Finish running payroll.

These wages are not subject to payroll tax withholding, filing or deposits, but are instead taxed on the individual level with annual tax returns.

If you have questions about the personal tax implications of owner's draws (versus payroll tax implications), we recommend reaching out to a licensed tax advisor for guidance.