I have a client who should have , but did not have payroll in 2025. His side business grew and he hired his friends to assist with the work.
They were paid like independent contractors, which may actually be true, he did not have enough business to fully employ any of them, and it is also a seasonal business, you can’t do the work in inclement weather.
Yet, he should have had payroll for at least himself. S-Corp owners need to pay themselves a reasonable salary. He paid himself nothing.
He was then notified by his Worker’s Compensation provider that he was due for his annual audit. I have to applaud him for having the coverage. I expect him to get slapped for not collecting the WC coverage reports from his Independent Contractors and having to pay for their coverage. I doubt they had them to collect.