How Much Should You Pay Yourself as a Contractor? (Salary vs Draw, With a Formula)

The formula

Owner pay = market salary for the roles you fill (in overhead) + profit distributions (after 8%+ net).

Unpack it in three steps:

1. Price your roles like hires. List what you actually do — estimator, PM, lead carpenter, bookkeeper, salesperson — and what each would cost to hire in your market. A working owner covering PM + estimating is commonly worth $70,000–$130,000+ combined. That total is your salary: what the business pays for your labor, the same way it pays anyone’s.

2. Put that salary in overhead. This is the step almost everyone skips and the whole reason the formula works. Your management labor is a real cost of producing jobs; if it’s not in your overhead rate, every bid you send is underpriced by exactly your own wages — the case study above. Re-run your rate with your salary included: overhead percentage calculator.

3. Profit comes after — and it’s not your wages. With your salary as a cost, whatever net remains (target 8%+) is the company’s earnings: working-capital cushion, equipment, and distributions to you as owner. Salary pays you for working in the business; distributions pay you for owning one that works.

To see what a given revenue and margin actually leaves in your pocket after burden and taxes, run the contractor take-home pay calculator.

Draw vs. salary vs. S-corp: the mechanics

The formula above is economics; how the money physically moves depends on your entity. (Confirm specifics with your CPA — this is the map, not the tax advice.)

• Sole proprietor / single-member LLC: you take an owner’s draw — a transfer from the business account, no payroll withholding. You’re taxed on profits regardless of what you draw, via quarterly estimates. Discipline substitute: same amount, same date, every month.
• S-corp owner-employee: the IRS requires reasonable compensation — a real W-2 salary approximating what you’d pay someone else to do your job — before distributions. Artificially low salary + big distributions is the textbook audit flag. For working contractor-owners, reasonable usually lands $60,000–$130,000 by role and region.
• Partnership / multi-member LLC: guaranteed payments serve the salary role; draws against profit serve distributions.

In every structure, the bookkeeping point is identical: your labor cost lives in overhead; ownership profit lives below the line.

Pay yourself on a schedule, or the business lies to you

“Whatever’s left, when there’s cash” feels prudent. It’s actually the best camouflage an unprofitable business has:

• It falsifies your bids. No owner salary in overhead → your prices are subsidized by free labor → you win jobs precisely because they lose money.
• It falsifies your margin. A “9% net” that includes zero owner pay isn’t 9%; the case-study company was −$65k.
• It scrambles cash flow signals. When owner pay flexes to absorb every shortfall, you never feel a cash flow problem forming until a tax bill or slow month makes it everyone’s problem.

Fixed amount, fixed dates, exactly like an employee. If the business can’t sustain your market salary on schedule, that’s not a reason to skip the salary — that’s the business telling you the pricing is wrong, while there’s still time to fix it.

Benchmarks and sanity checks

• Owner salary as % of revenue (working owner, residential remodeling): commonly ~15–20% at $300–500k revenue, ~10–15% at $500k–$1M, single digits beyond $2M as the org fills out. Falling percentage with rising revenue is healthy; falling dollars is not.
• Salary + true net of 8%+ is the two-part test of a real business. Salary alone = you bought yourself a job. Net alone (unpaid owner) = the job bought you.
• Raise your salary like a cost, not a celebration — when the market rate for your roles moves, or your roles change. One more reason 2026’s wage inflation belongs in your overhead review.

Bottom line

Pay yourself a market salary for the work you do, on payroll-like schedule, carried in overhead so every bid funds it — then judge the business by what’s left. The leftover method feels humble, but it isn’t: it overstates your margin, understates your prices, and lets a company that loses $65,000 a year masquerade as one that makes it. You’d never let an employee work a year for “whatever’s left.” You’re the most expensive employee you have.