How Much to Pay Yourself? Salary Dos & Don’ts for Small Business Owners

As a small business owner, deciding how much to pay yourself isn’t always straightforward. Set your salary too high, and you might starve the business. Set it too low, and you risk burnout. 

The right number lies in understanding your business structure, cash flow, and tax responsibilities. Here’s a simple, practical guide to paying yourself the right way, without the guesswork. 

Why your salary matters 

Your salary impacts more than just your personal income. It affects your cash flow, tax obligations, and your ability to plan for growth. A clear salary structure also separates personal and business finances, something the CRA expects, and lenders look for. 

Expert tip: Treat your business like an employer, not an ATM. A structured salary helps you stay compliant and financially stable. 

1. Know your business structure 

How you pay yourself depends on how your business is set up: 

• Sole proprietorship or partnership: You typically take an owner’s draw, not a traditional salary. 
• Corporation: You can pay yourself through a salary, dividends, or a combination of both. This gives you more tax flexibility but also requires more paperwork. 

Expert tip: Dividends can reduce taxes, but they don’t build CPP like a salary does. Consider your long-term retirement income when deciding. 

2. Check what the business can afford 

Before deciding what you want to earn, assess what your business can realistically support. Review your monthly revenue, expenses, profit, and cash reserves. 

Your salary should be sustainable over time, not based on one strong month. 

Expert tip: Create a personal budget to find your “minimum viable salary.” This helps balance personal needs with business stability. 

3. Benchmark against industry standards 

Use industry reports, salary surveys, or government data to see what others in similar roles earn. This helps avoid: 

• Underpaying yourself, which can create personal financial strain. 
• Overpaying yourself, which can hurt cash flow and limit growth. 

Dos and don’ts of paying yourself 

Dos 

• Pay yourself regularly, like any other employee. 
• Align salary with business performance. 
• Keep clear records for legal and tax purposes. 
• Reassess annually as your business evolves. 
• Get professional advice on salary vs. dividends. 

Don’ts 

•  Don’t mix personal and business spending. 
• Don’t ignore taxes, CPP, or payroll deductions. 
• Don’t set your salary too high in early growth stages. 
•  Don’t underpay yourself long-term. 
•  Don’t rely on guesswork, understand your cash flow. 

Expert tip: Even if you’re the only employee, act like a boss. Regular payroll builds discipline and avoids messy bookkeeping. 

Legal & tax basics (made simple) 

In Canada, paying yourself a salary means setting up payroll deductions: Tax, Canada Pension Plan (CPP), Employment Insurance (EI) and remitting to the CRA. 

Paying yourself dividends is taxed differently, often at a lower rate, but you won’t contribute to CPP. Many incorporated owners use a salary-dividend mix for the best of both worlds. 

Expert tip: A quick consultation with an accountant can help you structure your pay to minimize taxes while protecting your benefits. 

When to adjust your salary 

Your salary isn’t fixed forever. Revisit it if: 

• Revenue grows consistently and the business can support a raise. 
• Your operations expand or you hire more staff. 
• Cash flow tightens and a temporary reduction is needed. 

Annual reviews are a smart way to keep your salary aligned with your business reality. 

Key takeaways 

• Base your salary on structure, cash flow, and industry benchmarks. 
• Follow clear dos and don’ts to stay compliant. 
• Review and adjust regularly as your business grows. 

Setting your salary doesn’t have to be complicated. With the right approach, you can pay yourself confidently while keeping your business strong. 

Need help ensuring HR compliance for your new business? 

Peninsula’s experts are here 24/7 to support small business owners like you, so you can focus on growing your business, not worrying about compliance. 

With our 24/7 advice line for instant answers, smart HR software to automate attendance tracking, shift scheduling & more; and full legal assistance for contracts or disputes, we’ve got your back every step of the way. 

This Small Business Month, we're celebrating the passion and purpose that fuels entrepreneurs like you. Explore free expert resources, webinars, and guides to help your new venture thrive here. Call us for free expert advice at (1) 833-247-3652.