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Can founders work for free? Can employees be paid with equity only?

By May 6, 2024No Comments

Federal and state employment laws mandate that employees receive at least minimum wage in cash for hours worked. Payment in equity-only does not meet this requirement. Usually, a founder’s service to their company classifies them as an employee under these laws. While the federal Fair Labor Standards Act (FLSA) exempts executive employees who own at least 20% of the company and actively manage it from minimum wage requirements, not all states offer similar exemptions. For instance, in California, minimum wage requirements apply to founders just as they do to regular employees. As such, founders should consult with legal counsel in the states where they work to understand applicable wage laws. If state minimum wage laws apply, founders need to ensure they’re paying appropriate wages, regardless of their willingness to work for less, to avoid potential company liability.

Author Foley Ignite

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