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Take Care of Your Employee (You) When it Comes to Payday

If you want to see a business owner get in trouble real fast, watch them when they miss payroll. It's not pretty.

One of the (if not THE) greatest responsibilities a business owners has is to make sure their employees are taken care of when it comes to payday. It's a sacred trust. That trust includes not just paychecks, but benefits, taxes, all the things that go with compensation.

That responsibility is just as great for the independent contractor working in the gig economy. The only difference is since you are self employed, your employee just so happens to be you.

Give Your Employee a Paycheck

One of the problems with independent contractor work is that we can forget how much it can hurt us when our employer isn't taking care of business. We wouldn't stand for it if a company didn't make payroll. We'd be up in arms if insurance wasn't paid or taxes weren't submitted. So why would you give our employer a break on all that just because the employer happens to be you?

Related: Where can you get a Doordash Pay Stub? You can't, as there is no such thing. How to operate when you need a paystub as an independent contractor.

If you REALLY want to develop a business owner mindset, this is where the rubber meets the road. How you handle the money that comes in, and how you handle what your true pay, is one thing that really can separate the adults from the children. This is the thing that says you are really taking care of business.

The best practice for really handling your work as a business is to keep your personal and business finances separate. Have your money deposited into a separate account, do not touch the money for personal use until you give yourself a paycheck. This makes a ton of difference as well for your taxes.

Get Away From Daily Pay

I see so many people who choose which platform they work on strictly on whether it offers a daily or instant payment option. I understand it, I've been there enough myself where you just really need that money right away. But it's a real problem when you have two particularly significant things you need to take care of in this business: your vehicle and your taxes. If you can't develop the discipline to wean yourself off of the daily pay feature, you'll never be in a position to take care of the repairs that are inevitable or the maintenance that is necessary for your vehicle, and you're going to be up a creek when tax day comes around.

The Paycheck Process

If you can develop a paycheck routine with your money, rather than spending what you get as it comes in, this does two things for you: It gives you a true picture of what you are truly making, and it makes sure the necessary things are taken care of.

I'll give you an idea of how I handle things. You can obviously make tweaks based on what works best for you. The process I use works best if your bank allows you to create multiple accounts, it's just a little easier to do all the steps.

Step 1: Get an account dedicated to your business.

Do not deposit your payments into your personal checking. You are running a business now. You can do one of two things:

  • A lot of banks or credit unions can set up a business account for you where you're setting it up as a DBA. They have different rules in different places about it.
  • Or you can do it with a sub-account in your main bank account. Have your money deposited in your business account or your dedicated sub-account, not in your checking.

Preferably find an account that makes it easy to set aside money. Ask if you can get buckets, or reserves for the things we'll talk about.

Update: I personally use Bank Novo. It's an online bank account designed for business. Two things I love about it: One, it allows up to five reserves. I have reserves for taxes, car expenses, and paid time off. You can check them out with my referral link.

DO NOT TOUCH A PENNY of your money until payday. I know it's hard sometimes, but this is an important discipline.

When your deposits for the week have all come in, set aside the money for your expenses, taxes and benefits

Payday for me is Thursday. All of my direct deposits from gigs have come in. But before a paycheck is cut, you have to deal with the deductions.

As Independent Contractors, We Need to Make our Own Deductions

In Episode 28 on the Podcast and the associated article that came out on Sunday, we talked about giving yourself benefits. Here is where you take the money out for those benefits. You're also setting money aside for other things. Here are a few things you want to keep in mind:

  • Payroll taxes
  • Vehicle expenses
  • Other expenses
  • Paid Time Off
  • Insurance
  • Retirement

So let's talk about some of these. We do go into a bit more detail, between Episode 28 on benefits, and Episode 20 on protecting yourself from being blindsided by tax and expense costs. Personally, I have four accounts that I slide money into – for taxes, expenses, paid time off, and retirement. So each week, I'm transferring money to each of these accounts.

Payroll taxes.

You'll need to get with your tax pro to figure out what you will need. If this is your only source of income, you'll probably be taking more out. If this is a side hustle, you may not need to take much out if your withholdings elsewhere might cover your taxes. I can't tell you what you should do. I'll tell you what works for me. I do a quick calculation of taxable profit – So if I brought in $1,000 for the week and drove 1,000 miles, $1,000 minus $580 is my taxable profit is $420. Now I take 20% of that taxable profit, or $84 and put that in my tax account.

Here's the deal – you're going to be paying 15% on self employment tax alone, there's no deductions outside your business expenses to reduce that. Standard or itemized deductions don't reduce your self employment tax. I do an extra 5% to cover my income tax – that's lower than my tax rate but because of deductions and tax credits, it covers me. You can learn more about taxes in episode 21, you really want to understand how that works if you don't already. Get with a good tax pro to figure out your best amount to set aside. Then every week, put that money where you won't touch it.

Vehicle expenses.

You really need to know and understand the true cost of your vehicle. In episode 18 we walk through how you can calculate that. You'll probably be surprised what it really is because it's so much more than just gas. The big thing on cars is that so much of the expense is something you're going to be paying later, sometimes much later. You'll pay it on the major repairs or replacements you have to do like tires or timing belts. You'll pay it when your car sells or trades for a lot less money because of all those freaking miles.

At the very very very minimum, it's costing you 25 cents a mile, more than likely 30 or more. If it's a newer car and still has a fair bit of value, it's going to be closer to 50. Calculate what your cost per mile is. Then each week, see how many business miles you drove, multiply that by your cost per mile and put that amount in your expense savings account. This is the only way you're going to avoid being blindsided by these expenses that are invevitable. It also gives you the ability to do the kind of maintenance you REALLY have to do to avoid some of those really big expenses.

Other expenses

Really, after your car there's not much else. Your cell bill is probably next up. All of your car stuff is already in the cents per mile you are setting aside. I'd say divide your additional monthly costs by four and put that money into your expense savings. This is a relatively small amount, but if you're in a position where even the small amounts can be stressful, this could be a good one for you. I don't know that you need a different account than what you put your car expenses into.

Paid time off

This is one that is terribly overlooked. Again, I'd point you back to Sunday's article and episode. I think this is even more important if this is a significant source of your income. You need to give yourself a chance to get some vacation, holiday or sick time.

Here's how I suggest you determine what you need to save.

First ask yourself the following questions:
  • What is your normal “take home” pay (what's left over after expenses and taxes)?
  • How much paid time off do you want to give your employee? Personally, I give myself 3 weeks – 2 for vacation and 1 for sick or mental health days.
  • How many weeks do you have left to save the money (usually if you're doing 3 weeks vacation, you have 49 weeks of earning to save it).
Now you can calculate like this:

Figure out what you need to save. That's your take home per week times the number of weeks you give yourself. If take home is $600 and you're giving yourself 3 weeks time off, that's $1800.

Now figure out what to save each week. That's your total savings divided by how many weeks you have to save. In our example, that's $1800 divided by 49, or just under $37 per week.

Put that weekly amount into a separate account for paid time off.


If you are self employed, your health insurance is kind of a grey area thing, where it's a personal item but can have business implications. Your health insurance isn't usually going to be treated like a business expense, I think the main reason I bring it up here is that it's more of a way of comparing what you are earning to if you worked a job that has insurance as a benefit. Sometimes it can make it easier to handle insurance costs if you break it down to a weekly amount to save, that way you have the money when it's time to pay premiums.


This too is a topic for your tax pro. I do take money out during my weekly process for my retirement contribution just to make sure it's there when I make my deposit each month. Your car insurance is part of the car expense you saved. You may also look at if you have accident or liability insurance to consider.

Step 3: Give Yourself a Paycheck.

Once you've set the money aside for all the things you determined to set aside, it's the amount left that you can transfer over to your checking account. This is essentially your take home pay.

What if it's not enough? Sometimes doing this is a reality check that this really isn't paying what you thought. This could be a wakeup call that makes you decide between either increasing what you earn or finding something different.

Step 4: What about all that money that's left over?

Once you've put all that money aside, you only take it out when there's an actual expense from that category. If you have a business account, you transfer your money from the particular savings account to your business account when you have to make a payment. Or you transfer it from the appropriate savings account to your checking as a reimbursement for the expense. When you make tax deposits or payments, you reimburse yourself out of your tax savings.

As you buy gas, you pay for it now out of your expense account or reimburse yourself from that account. When you take your vacation, you transfer your time off money over as your vacation pay. If you deposit into your retirement account, you take it out of your retirement savings.

If you have a car payment, do NOT take the payment out of your expense fund, unless you calculated it into your cost per mile. Your car payment is not an expense. If you calculated interest into that cost per mile, you can take the interest portion out.

If you're not used to doing this, it's going to be hard.

You are probably used to having so much money coming in. Getting by on how much less is left over is going to be really difficult. What this does though is make sure that you have what you need when you need it for the things that are part of what you do.

Some of these things, you'll definitely need that money at some point. You'll need that tax money. If you took out more than you'll have to pay, that's cool – treat the difference as you would a tax refund. Your car fund can be tempting to leave alone as it grows, but stick with it. At some point you'll need a big repair, now you have the money for it. At some point you'll replace the car, but now you have the money to cover how much value you lost due to the miles.

You might look at the paid time off as a non-necessity. It is and it isn't. Here's the thing: would you put up with an employer that doesn't let you take time off? Why would you allow yourself to be THAT boss?

But here's the thing: You really need to start thinking this way. And if you just can't cut it, maybe that's your wake up call where you realize like we talked about in Episode 22: that this really isn't paying enough. So what do you do? Earn more or find something that does pay enough. But don't take short cuts because it's not enough because the reality is that you WILL need that money that I'm telling you to set aside. You can be short a little this week, or be short a TON when the need arises. Which one is it for you?

Could this help someone else? Please share it.