My friend needs my help with something big (specifics irrelevant). I told him I might do it if in return he could help further one of my start-up projects, i.e. an idea I have that has a lot of groundwork but certainly hasn’t reached the point where it will make money yet. It’s very known that start-ups take a lot of funding and initial investment before they actually produce any revenue. So, is this a situation that the concept of minimum wages would NOT apply? Can I say “okay, i’ll pay you $X when the project makes money or gets some form of funding”, where X is at least minimum wage, but for which I can’t deliver any solid time-line on? thanks for the help, guys!!
Can I indefinitely postpone paying a worker if my company is starting out and doesn't make money yet
Since this involves legal advice, let’s move it to IMHO.
Colibri
General Questions Moderator
You’re only required to pay actual employees a minimum wage. Independent contractorsare not covered by this. If you can legitimately structure the work as a contract, you don’t need to pay minimum wage.
It’s not “when the project makes money or gets some form of funding” but “if”. He would properly be a partner/shareholder, not a worker or contractor.
Simple answer is no.
The slightly more complex answer is that there are exceptions. If he is immediate family, you can get away with violations of labor law. If you make him a partner, then he’s just as on the hook for things as you are, and just as able to profit if things go well.
You could get away with paying less if he set up as a contractor, but there are many restrictions to that. You can’t just declare an employee a contractor, and they can’t just accept it. There are specific rules as to what constitutes a contractor, and it is very likely that the work that you would need him to be doing for you would not qualify. Basically, you can’t give him a schedule, equipment to work with, training, or any sort of direction other than specifying the end results of his work. So, you can say, I need to have X done by Friday. But you cannot tell him to come in tuesday through friday, from 10-6, and perform certain tasks in order to achieve the desired results.
If I did this, it would eventually end up being the end of the friendship.
It might survive til the company got going, and then have problems, or it might happen right away… but few relationships can survive the feeling that the other person is making out better on the deal than you are.
Without knowing exactly what the OP needs to have done, it’s impossible to say whether working it as a contract would apply or not. I’m a freelance contractor (mostly writing) myself. Basically I have to provide some “deliverables” (articles, documents) which are specified in the contract.
I estimate how much time the job will take, then I apply my standard rate to work out the cost. I provide the employer with a quote for the work, and if that’s acceptable we do a contract. But no hours or hourly amount are specified in the contract. If I do the work in fewer hours I’m to the good, and if not I lose money.
But yeah, a contractor generally has to provide his own work space, tools, equipment, etc., and can’t work a schedule dictated by the employer.
Right, depending on what he needs done, it could be done as a contractor.
Just be cautious, as my main experience with contractors is seeing people in my industry get caught misclassifying their employees and being hit with tens of thousands of dollars of back taxes.
And in exchange for all that, a contractor generally likes to have more assurance of payment than “if this ever makes money I’ll pay you then.” Part ownership, perhaps.
Or if your or your friend’s projects involve real, tangible assets, the contractor might insist on having a lien.
Currently I am working on a project where my quote for my work was higher than my client thought they could afford. So we have worked out a deal that I will take half my pay in cash, and half in equity (shares) in the project. My income on the latter is not guaranteed, and so is a risk. But I think the project has a good shot at being profitable and hence is a good investment.
You should consult a lawyer.
I know of a business owner who failed to pay her employees and wound up in court. The penalties assessed were seven times the amount of wages owed. In other words, this could get very expensive if things turn ugly.
Not quite on topic, but there’s no way your friend would stay committed to a project enough to do good work over an unspecified period of time for nothing but the possibility of back pay if the project ever becomes profitable. To get someone to work for nothing up front, and possibly nothing ever, you need to give them more skin in the game.
If minimum wage laws apply, then you have to pay him in a normal timeframe, period. There’s not really any exception to this, an employee of your company either gets paid or you’re breaking the law. But it doesn’t sound like you want to hire him as an employee, you want to hire him as a contractor or bring him on as a partner. In which case you can offer some kind of payment plan that’s agreeable to both of you, or offer him shares in the company. Like other people have said, no one is going to do good work for a vague ‘maybe one day you’ll get some money’ promise, but giving him a stake in the venture might work.
But the simplest answer is that you should just run this by whatever lawyer is drawing up the paperwork for your start up project and he should be able to tell you what’s workable. If you don’t have a lawyer setting up the structure, you’re going to create huge problems later anyway.
the first problem I see is about guarantee: if you postpone the payment for the worker, what will be his/her guarantee that payment will be actually done when the company will make money?
the 2nd problem is about business fairness: a worker that puts work and gets no money cannot in fact exist as only “worker”, he/she because of the contribution for the company future (with work) would be considered a founder and investor and have considered the respective rights. (i.e. percentage of company profit, shares, etc)
I’ll also note, start ups don’t typically wait until they make money to pay their employees. Remember that “funding and initial investment” you mentioned? That’s the money you pay your employees.
Hmmm…
ISWYDT. 
Apropos of nothing in particular, I present for your consideration, the saga of David and Simon:
http://27bslash6.com/p2p.html
You could skirt the law by treating the employee like a contractor, even though the law doesn’t allow it. The bad news is that the US is lousy with employers getting away with this. The worse news is that the law is unclear, and they may continue to get away with it.
I was involved in doing marketing for a start up. One guy quit his job to work on the app.
Some slick talker came in, took over, and that’s the last I heard of it. I didn’t see a penny and I hope the guy who was working on the app got his old job back.