Mark Kohler's payroll matrix shows how much of your net income should go to payroll. At $100k-$200k income, allocate 35-40%; at $400k, drop to 20%. The percentages decline as you earn more, helping you keep cash while staying tax-efficient.
Let me show you the Kohler payroll matrix. So in this matrix, this will be your net income, and then our other axis will be your percentage of payroll. Now, check this out. As a client's net income goes up, the payroll allocation goes down. So this is the net income. This is the percentage of payroll. So this is where the sweet spot is. This is where middle income America is. They're making between 100 and 200 grand. Small business owners, and I'm going to allocate their payroll around 40%, 35%. And as they start to make more money, I'm going to bring that payroll down and flatline it at about 20%. If I have a client making 400 grand, I probably do their payroll at 120, something like that. And it's going to be subjective. I'm going to talk about their business, the goodwill, how many employees, how many hours they work for. Sure, this is a starting point. But look at this. At 100 grand, I'm going to do about a 40% allocation. A 40% allocation, save nine grand. The more money I make, the more I save.
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