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TL;DR: Owner salary belongs in SG&A as a fixed expense at market rate. Owner draws are distributions of net profit and do not belong in SG&A. When an owner books $70,000 in salary but takes $180,000 in total draws the overhead rate is calculated on $70,000. The other $110,000 comes from net income that should have been retained as cash. Every bid is underfunded by the difference between market-rate salary and actual booked salary divided by revenue.

Owner Compensation

Owner Draw vs Salary —
What Goes in Your Overhead Rate.

Most construction owners take draws when cash is available and book a minimal salary. The overhead rate is calculated on the salary. The draws come from net profit. Here is why that distorts every bid.

Published: May 2026 · Updated: May 2026

The Problem

Three Ways General Contractors Lose Margin

Salary Booked at Minimum to Reduce Payroll Taxes

Many owners structure compensation as a minimal W-2 salary plus draws to reduce payroll tax exposure. The overhead rate is calculated on the W-2 salary. The draws are taken from net profit. Every bid is underfunded by the gap between minimum salary and market rate salary because the overhead rate does not reflect the true cost of the owner's role.

Draws Vary With Cash Availability

Owner draws taken when cash is available and reduced when cash is tight produce an inconsistent owner compensation pattern. The overhead rate changes month to month depending on draw timing rather than being a stable fixed cost. A stable market-rate salary booked monthly is the only structure that produces an accurate and consistent overhead rate calculation.

Market Rate Never Established

Many owners have never benchmarked their compensation against the market rate for their role. At $3M-$8M in revenue the owner typically fills a GM, estimator, and business development role combined. Market rate for that combination is $120,000-$180,000. If $70,000 is in SG&A the overhead rate is understated by 50,000-110,000 per year divided by revenue.

The Fix

How SPM Fixes It in 60 Days

Book a market-rate salary to SG&A monthly — not a draw-based amount. The market rate for the owner role at your revenue level goes in SG&A as a fixed monthly expense regardless of cash availability. This is what every analysis of overhead rate is built on. It needs to be consistent. At $3M-$8M revenue the market rate is $120,000-$180,000 per year. At $1M-$3M it is $90,000-$130,000.

Recalculate the overhead rate after correcting salary. SG&A including the corrected owner salary divided by revenue equals the real overhead rate. Compare to what is in the bid model. Update the bid model immediately. Use the overhead rate calculator to run the corrected numbers.

Take distributions from net income after overhead is covered. Owner distributions are a use of net profit — they come after all overhead including market-rate owner salary is covered. The business covers SG&A including owner salary, generates net income, and then the owner takes distributions from net income. When distributions are taken before overhead is covered the business is cash-negative even when it looks profitable on the P&L.

FAQ

Frequently Asked Questions

What is the difference between owner draw and owner salary in construction?

Owner salary is a fixed compensation expense booked to SG&A that runs regardless of profitability. Owner draw is a distribution of net profit taken after all expenses including owner salary are covered. Only salary belongs in the overhead rate. Draws come from net income.

Should owner distributions affect the construction overhead rate?

No. Distributions are not an operating expense. They do not belong in SG&A and they do not belong in the overhead rate calculation. The overhead rate is calculated on SG&A which includes market-rate owner salary. Distributions are what is available after the overhead rate covers all SG&A.

How does owner draw vs salary affect construction company valuation?

A buyer normalizes owner compensation to market rate before applying an EBITDA multiple. If the owner is taking $180,000 in total compensation but only $70,000 is in SG&A the buyer will add $110,000 to SG&A as a normalized expense which reduces EBITDA and therefore reduces the valuation. Starting with market-rate salary in SG&A produces an EBITDA figure that does not require normalization.

What market-rate salary should a construction owner pay themselves?

At $1M-$2M revenue: $90,000-$120,000. At $2M-$4M: $110,000-$150,000. At $4M-$8M: $130,000-$180,000. At $8M-$12M: $150,000-$200,000. These are total W-2 compensation figures not including distributions from net profit.

Owner Draw vs Salary —What Goes in Your Overhead Rate.