Start-up companies are often in cost-saving mode, but when it comes to employees, be prepared to pay at least a minimum wage. Many companies forget about it.
All companies, regardless of size, must pay either the applicable state minimum wage (currently $8.00 per hour in Massachusetts) or $455 per week of salary for someone who qualifies under one of the so-called “White Collar” exemptions from overtime (Executive, Professional or Administrative). If you choose the hourly option, the Company must also pay 1.5 times the hourly rate for all “overtime” (i.e., all hours over 40 in a workweek).
There is no basis in law to defer an employee’s compensation for extended periods time, and no basis to compensate purely on equity or options, if the employee is not making at least the required minimum wage. Employees cannot waive these rights in a contract or otherwise. In one case, an employee of a start-up who unambiguously agreed by contract to defer payment of wages until the company obtained financing prevailed in a suit against the company for payment of those wages. You don’t want to be in that position by surprise.
And there are real consequences to violating these rules. Under Massachusetts law, the company will have to pay the employee three times the employee’s damages and attorney’s fees if successful in an unpaid wage claim. In addition, the managers and officers of the company can face personal liability for failure to pay minimum wages or overtime. The Massachusetts Attorney General can also pursue criminal penalties against employers, managers, and officers for violating the wage and hour laws, which include both monetary fines and up to two years of jail time.
Before signing any employment agreements or offer letters or otherwise bringing on employees, consultants and interns, entrepreneurs should understand the wage and hour laws in their state and consult with an attorney to see the best way to structure the relationship with the potential hire.