Why Directors and Founders Should Pay Themselves a Salary

Starting a business is a bold move. You pour your time, energy, and resources into building something meaningful. But amidst the hustle of client work, compliance deadlines, and cash flow management, one question often gets pushed aside: Should I pay myself a salary?

The short answer? Yes. And here’s why.

1. It Reflects the True Cost of Running Your Business

When founders work for free, it creates a false sense of profitability. Paying yourself a salary—even a modest one—helps you understand the real financial health of your business. It forces you to budget realistically and price your services appropriately.

Think of it this way: if your business can’t afford to pay you, it’s not yet sustainable.

2. It Improves Financial Planning and Tax Compliance

In South Africa, directors who draw a salary must be registered for PAYE (Pay As You Earn) with SARS. This ensures your personal income tax is correctly accounted for and helps avoid surprises during tax season. It also makes EMP501 reconciliations cleaner and more accurate.

Plus, regular salaries make it easier to apply for financing, rent property, or prove income for personal matters like home loans.

3. It Creates a Clear Paper Trail

Paying yourself through payroll (instead of ad hoc drawings or dividends) creates a transparent record of compensation. This is especially important if you have investors, co-directors, or plan to grow your team. It shows professionalism and builds trust.

4. It Protects You Legally

In some cases, SARS may scrutinize directors who take large drawings without declaring income. By formalising your compensation, you reduce the risk of non-compliance and demonstrate that your business is operating responsibly.

5. It Reinforces Your Value

You are your business’s most valuable asset. Paying yourself isn’t just about money—it’s about recognising your worth. It sets the tone for how others (clients, staff, partners) perceive your role and contribution.

Be Wise—Don’t Drain Your Company Finds

While paying yourself is important, it’s equally vital to do so responsibly. Taking excessive drawings or draining company funds can hurt your business’s cash flow, tax position, and long-term sustainability.

A smart approach? Consider a modest monthly salary that reflects your role and workload, and then—if the business performs well—declare a dividend once a year. This strategy can help balance your personal income needs with tax efficiency.

But every business is different, and the right structure depends on your goals, turnover, and compliance obligations. That’s why it’s best to speak to a professional.

If you’re unsure how much to pay yourself or how to structure it, start small and scale up. Work with a tax practitioner to:

• Register for PAYE with SARS
• Set up monthly payroll
• Ensure your salary aligns with your business’s cash flow and tax obligations

The Tax Shop Alberton is here to help. We’ll guide you through the pros and cons of salary vs. dividends, help you stay compliant with SARS, and make sure your compensation strategy supports both your business and your personal finances

Need help setting up your salary structure or understanding your tax obligations?

Let’s chat—we’re here to support your growth, every step of the way.

Emily Gomes (ICB Senior Bookkeeper)

Senior Bookkeeper