An essential aspect during the hiring process, particularly in smaller, early-stage companies and startups, revolves around the compensation strategy. Given the limited financial capacity at their disposal, many such enterprises have historically opted for equity-only or deferred compensation schemes as a way of circumventing the need for regular salaries. However, according to a post made by Fenwick & West LLP, such compensation methods are regarded as illegal— regardless of the parties’ full consent.
The firm emphasizes that all workers are entitled to at least the minimum hourly wage, an amount which fluctuates depending on the location of the job. Some cities have higher minimum wages due to the high cost of living, for example, San Francisco, Los Angeles, Seattle, and others.
Furthermore, for startups aiming to attract potential talent in a legally compliant way, there are a few points that they should remember when planning their hiring and termination policies:
- Equity compensation: This should be offered in addition to, and not in substitution for, at least the hourly minimum wage.
- Deferred Compensation: While tempting, this practice can result in severe tax consequences and breaches of labour laws which are viewed seriously by both state and federal authorities.
- Proper termination methods: Dismissal of employees requires careful planning and execution. It is advisable to consult with an employment benefits attorney to ensure the dismissals are compliant with all necessary state and federal laws.
Maintaining legal compliance in hiring, compensating and terminating employees will not only lead to a healthy and compliant corporate culture but will also fend off unnecessary legal issues, allowing founders to dedicate their time and energy into growing their businesses.