Legal Question in Business Law in California

There is no simple answer to this seemingly simple question. Generally the answer would be yes, but it might be significantly unfavorable to do so from a tax standpoint since payroll taxes are usually more than self-employment taxes, and there are tax favored retirement options not available to wage earners. If it is done to evade debts or judgments, or to mis-state income for Family Law purposes, then even though it might be legal, it may be disregarded by the courts. So the closest I can come to an answer without specific facts and circumstances is: generally yes, but it often is a bad idea to do so rather than taking profit draws. The only situation where I believe it is not permitted is in a partnership. I'm pretty sure partners have to report all income from the partnership on a K-1, rather than as employees. Check with a tax specialist on that though, as I'm not 100% sure.

Your question is hard to answer because it seems you are using the word "employer" in two different ways. On the one hand, you seem to mean the corporation or other entity for whom the employees work. On the other, you also seem to mean the person who leads and/or owns the business entity. Unless the business is a sole proprietorship, the employer in the first sense is not the same as the employer in the second sense. I would need to know more about your situation before I could even be sure I understand the question, let alone give you a good answer.