Yes, you can definately do this, and should if he is actually taking a salary which means taxes are involved just like any other employee.  If he is only taking a draw, that is a different story.   Owner draws are not an expense of the company and are also not taxed.

Thanks Char! To clarify, the "salary" he takes is reported on his personal tax filing and his taxes are paid then. His draws are handled through a GL account set up for that.  I'm hoping to be able to run his time through payroll without Sage calculating or withholding any taxes from him. I'm thinking that if I de-activate all the payroll calculations for that employee/owner then that should do the trick. 

Thanks Char! To clarify, the "salary" he takes is reported on his personal tax filing and his taxes are paid then. His draws are handled through a GL account set up for that.  I'm hoping to be able to run his time through payroll without Sage calculating or withholding any taxes from him. I'm thinking that if I de-activate all the payroll calculations for that employee/owner then that should do the trick. 

Except that you will be booking his draws as an expense, which they are not.  Verify with your CPA or tax accountant.  I don't think you can do this legally.  But yes making the taxes inactive will turn them off.  

His "Draws" are set up as an Equity and his "Salary" is set up as an Admin Expense. They are indeed kept separate.  

I'm wondering now if paying out of payroll will mess anything up for his personal taxes since payroll is paid out of a Direct Expense account?

Then his Salary MUST be taxed.  When you book his time to a job, those costs will hit a Direct Expense account and not his Admin expense.

Lilah - If he is a single member LLC it's like being a d/b/a. He can take money as "Draw" but not "Salary" through payroll.

Its not a single member LLC. He has an equal partner. I'm not exactly sure what the LLC Structure is, but I have talked to our CPA to make sure we are doing thing correctly as of now and he assured me we were. 

Maybe I need to have more conversations with the CPA about Direct Expense vs Admin Expense. 

Our CPA just doesn't have any SAGE 100 Contractor knowledge. I was hoping someone here was in a similar situation and could give me some advice.