Your Payroll Structure Could Be Costing Thousands: Here’s the ROI You’re Missing (October 2025 TogetHR Times)
Your Payroll Structure Could Be Costing Thousands: Here’s the ROI You’re Missing
By Sunny Jonckheere
Many small and medium business owners feel frustrated when tax season arrives, especially if they are paying self-employment tax on all their profits. When you are operating as a sole proprietor or single-member LLC, every dollar of net income is taxed, even if you don’t take it all home. The result is often thousands lost to the IRS that could have stayed in your pocket.
One way to change that story is by electing S-Corporation status. An S-Corp is not a new type of business but a tax election that can significantly reduce how much you pay in self-employment taxes. It allows you to structure your income in a way that lowers your overall tax burden while still keeping you compliant.
For many businesses earning more than $40,000–$50,000 a year, this can mean real money back in the owner’s pocket. Instead of paying self-employment tax on the entire profit, you pay it only on your wage portion. The rest is treated more favorably, reducing your overall tax burden and increasing your take-home pay. Even with the costs of payroll, bookkeeping, and compliance, the return on investment can show up in the very first year.
There is another benefit many solopreneurs do not realize: workers’ compensation. When you run your business as a sole proprietor or single-member LLC, carriers often calculate workers’ comp premiums based on your full business profits. As an S-Corp, premiums are generally based only on your payroll salary. That means you not only save on taxes, but you may also reduce your workers’ comp costs by limiting premiums to a smaller, salary-based amount. This can be especially valuable for independent contractors and professionals in industries where workers’ comp coverage is required or highly recommended.
Here’s what that can look like in practice: imagine a solopreneur whose business earns $100,000 in profit. As a sole proprietor, they could owe more than $15,000 in self-employment tax alone. By electing S-Corp status and paying themselves a $60,000 salary, the remaining $40,000 is taken as distributions and are not subject to self-employment tax. That shift can save between $7,000 and $10,000 in taxes each year before even factoring in potential workers’ comp premium reductions. Those savings alone can cover the cost of professional support services like ours at TogetHR Consulting, and still leave extra money in the owner’s pocket.
Beyond the financial savings, S-Corp status also strengthens your business. It reinforces the separation between personal and business finances, supports retirement planning and health insurance options, and reflects a step forward in maturity and growth.
Of course, setting up an S-Corp the right way matters. The IRS requires that the salary you set for yourself is “reasonable,” that payroll is properly established, and that all filings are completed on time. We always recommend talking with your CPA to confirm whether an S-Corp election is right for your situation. Once you have that direction, our team helps with the critical next step: making sure your payroll, HR, and compliance systems are aligned with your new structure. From running payroll correctly to keeping you compliant with reporting, workers’ comp, and employee management, we help you turn tax savings into business strength.
If you are wondering whether an S-Corp makes sense for your business, now is the time to explore it. The sooner you make the election, the sooner you start saving, and for many owners the savings are measured in thousands of dollars every year.
We are not just here to handle your HR and Payroll. We help you run smarter. Many business owners discover that the tax savings from an S-Corp are enough to cover the payroll and HR systems that keep their business compliant, efficient, and scalable. That is true ROI. You save money, strengthen your operations, and gain a partner who is invested in your growth and success.
