How to Pay Yourself as a Contractor (Without Wrecking Your Business)
Knowing how to pay yourself as a contractor is the question most people never ask until it goes wrong. You win a big job, money hits the account, you transfer some to yourself - and three weeks later you cannot pay the subbies. That is not a cash flow problem. That is a discipline problem.
This is really a conversation about construction arbitrage and how the margin works. The money that flows through your account is not your money. Your money is the net, after subs, materials, overhead, and tax reserve. Paying yourself from the gross is one of the fastest ways to sink an otherwise profitable business. (Figures in this post are in USD - the model and the math are identical in any currency.)
What you are paying yourself from
Revenue is vanity. Net profit is what you eat. On a $150,000 project, your subbies might cost $90,000, materials another $20,000, and overheads - insurance, admin, fuel, van - another $10,000. That leaves $30,000 gross margin. Before you take a penny of that, you need a tax reserve and enough cash in the business to cover the next job's deposits.
A simple working structure: 30% of net profit set aside for tax, 20% kept as operating reserve, and the remaining 50% available to pay yourself. On $30,000 gross that is $9,000 for tax, $6,000 for the reserve, and $15,000 you can take. That is not a law. It is a sanity check to run each month until you know your numbers cold.
Owner's draw vs salary - which one applies to you
The method depends on your business structure.
- Sole trader / sole proprietor / single-member LLC (US default): You take an owner's draw. No payroll, no W-2. You transfer profit from the business account to your personal account. You pay income tax and self-employment tax on the full year's net profit, not just what you drew.
- Partnership or multi-member LLC: You take distributions or guaranteed payments as agreed. Tax follows your ownership share of the profits.
- S-Corporation (US election): You must pay yourself a reasonable salary through payroll. On top of that, you can take distributions, which are not subject to self-employment tax. This split is where the tax saving comes from.
- Limited company (UK, Australia, NZ, Canada): You run a salary through payroll and can top it up with dividends. The tax treatment of each differs and changes with each budget cycle - always verify with your accountant.
The tax picture by country
The underlying model is universal - win the client, subbies do the work, you keep the margin. The tax on that margin differs by country and structure. Here is the headline position for each major English-speaking market. For your specific situation, verify current rates and thresholds with the official authority in your country - these numbers change with budgets and legislation. On compliance questions, see the full legality breakdown here.
| Country | Main structure | How you pay yourself | Key tax point (verify current rates) |
|---|---|---|---|
| USA | Sole proprietor or single-member LLC (default pass-through) | Owner's draw - transfer profit to personal account | Self-employment tax is 15.3% (12.4% Social Security + 2.9% Medicare) on 92.35% of net profit for 2026. Social Security wage base is $184,500. Half of SE tax is deductible on Form 1040. Consider S-Corp election above ~$60-80k net profit. |
| UK | Sole trader or limited company | Drawings (sole trader) or salary + dividends (Ltd) | Sole trader: pay income tax on profit via self-assessment, personal allowance £12,570. Ltd company: low salary (to NIC threshold) plus dividends. Verify current NI thresholds and dividend rates with HMRC - they change each tax year. |
| Canada | Sole proprietor or corporation (Inc. or Ltd.) | Owner's draw (sole prop) or salary + dividends (corporation) | Sole proprietor profits are taxed as personal income at federal + provincial rates. Incorporating can create tax deferral at the small business rate. Verify with CRA and a local accountant - federal + provincial rules vary. |
| Australia | Sole trader or Pty Ltd | Drawings (sole trader) or director's salary / dividends (Pty Ltd) | Sole trader: pay income tax on business profit, 2% Medicare levy applies. Pty Ltd: company pays tax at corporate rate; you receive director salary and/or dividends. Verify current ATO rates and company tax rate with ATO. |
| New Zealand | Sole trader or company | Drawings (sole trader) or shareholder salary / dividends (company) | Sole trader: income tax on profit via end-of-year assessment. Company: shareholder salary is an expense and deductible; dividends carry imputation credits. Verify with IRD (ird.govt.nz) for current thresholds. |
How much to actually take
There is no single right number, but there is a wrong one: whatever landed in your account this week. Here is how I think about it.
First, know your monthly fixed cost floor. What does the business need to run - insurance, van, phone, accountant, software? That number never moves much. Cover it before you pay yourself.
Second, set a tax reserve the day money comes in - not at the end of the year. In the US, quarterly estimated tax payments are due in April, June, September, and January. Missing them means penalties, not just a bill. The moment a client payment hits, move 25-30% to a separate account and do not touch it. Rough starting point, not a calculation - your exact rate depends on income bracket, structure, and state. Confirm with a CPA.
Third, keep an operating buffer. Three months of fixed costs minimum. Construction work is lumpy - a slow month after a good month is normal. If you took all the profit last month, you are borrowing from your subbies this month.
What is left after that is what you can take. Some months it is a lot. Some months it is nothing. That is the business.
How construction arbitrage changes the math
Most self-employed tradespeople pay themselves from what is left after they have sold their time. The ceiling is the hours they can work. When you run construction arbitrage - holding the prime contract, sourcing the labour, keeping the margin between the two - you are not capped by your own hours. You are capped by how many jobs the business can manage in parallel.
A tradesperson earning $80,000 a year is selling 2,000 hours at $40. A general contractor (main contractor in the UK) running three concurrent jobs at a $30,000 margin each is drawing $90,000 and not lifting a tool. Same revenue territory, completely different ceiling. The ceiling lifts again when you build systems that let the jobs run without you on-site every day.
That is the shift. You are not trying to charge more per hour. You are removing your own hours from the equation.
If the amount you pay yourself depends on you being on every site, you don't own a business. You own a high-risk job with extra admin.
The practical setup
Keep three accounts: one for trading (client payments in, subs and suppliers out), one for tax reserve, one personal. Never mix them. Every time a client payment lands, split it immediately: fixed percentage to tax reserve, the rest stays in trading. Pay yourself from trading on a set day each month - not when you feel flush and not when you feel broke. A regular draw date builds discipline and gives you a clear picture of what the business actually earns.
- Set a draw date: first Monday of the month, for example
- Draw only from verified net profit - not expected profit on an open job
- Keep your tax reserve untouchable until the payment is due
- Review the split quarterly: as profit grows, you can increase the draw
- Talk to an accountant in your country before changing your business structure - the tax saving from a company structure only exists above a certain profit level
The margin machine only works if the cash inside it is managed properly. Get the structure right and paying yourself becomes a decision, not a gamble.
Request entry to Contractor Club⟶Frequently asked questions
Can I pay myself a salary from my construction business?+
Yes, if you run through a corporation or a company. As a sole trader or single-member LLC in the US, you take an owner's draw - there is no payroll. Once you incorporate, you can put yourself on payroll. The right structure depends on your profit level and tax position, so run the numbers with a local accountant before switching.
How much of construction business profit should I take as salary?+
A rough working rule is 30 to 40 percent of net profit once you have covered your tax reserve and three months of operating costs. In the early months, take less. The business needs cash to fund materials, deposits, and slow-paying clients before you do.
Do I pay tax on what I draw from my construction business?+
In the USA, as a sole proprietor or single-member LLC, you pay self-employment tax and income tax on the full net profit - not just what you withdraw. The 2026 self-employment tax rate is 15.3% applied to 92.35% of net earnings. In the UK, sole traders pay income tax on profit through self-assessment. What you draw does not change the taxable profit.
What is the difference between an owner's draw and a salary?+
An owner's draw is a transfer of profits to yourself with no payroll processing. A salary is formal payroll - a fixed regular amount, subject to payroll tax withholding, and reported on a W-2 in the US or a payslip in the UK. Draws are simpler; salaries are required once you have an S-Corp in the US or a Ltd company in the UK.
When should I switch from sole trader to a company?+
Roughly when your net profit consistently exceeds $60,000 to $80,000 a year (figures in USD). Below that, the accounting costs of running a company usually outweigh the tax savings. Above that, the split between salary and dividends (UK) or salary and distributions (US S-Corp) can reduce what you hand over in self-employment tax. Check the current thresholds with an accountant in your country.
How do I pay myself if I have multiple construction projects running?+
Same method - draw from net profit, not from individual project revenue. Keep a business account separate from personal. Pay yourself once the project funds have settled and you have confirmed the margin. Taking money mid-project against expected profit is how cash flow problems start.
The human behind The Playbook
mointhemarket Managing construction businesses across continents - with full location freedom. Running several at once. Bought and sold many more.
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