Introduction
Tech startup founders often delay paying themselves, either to preserve cash or because they are unsure how compensation affects taxes. While this can be appropriate early on, there comes a point where paying a salary becomes both practical and strategic.
Understanding when to start founder salaries helps startups balance cash flow, compliance, and long-term planning.
Key takeaways
There is no universal right time to start salaries
Cash flow stability is a key factor
Payroll creates tax and CPP obligations
Compensation decisions affect future planning
Who this applies to
This applies to early-stage and growing tech startups with Canadian founders.
Factors that influence founder salaries
Startups often begin paying salaries after securing funding, reaching consistent revenue, or when founders can no longer defer personal income needs.
Salaries also create RRSP room and CPP contributions, which may be part of long-term planning.
Alternatives to salaries
Some founders rely on dividends or shareholder loans in early stages. Each option has tax and compliance implications that should be reviewed carefully.
Common mistakes
Issues arise when payroll is started without proper remittances, when salaries exceed what the business can sustain, or when compensation is inconsistent year to year.
Frequently asked questions
Is it mandatory to pay a salary?
No, but income eventually needs to be reported properly.
Can founders pay themselves irregularly?
Yes, but consistency simplifies compliance.
Does salary affect startup taxes?
Yes. Salaries are deductible to the corporation.
Closing
Founder compensation should evolve alongside the business. A thoughtful approach ensures compliance while supporting both personal and business sustainability.