Minimum wage laws and startups?


3

As a technical person, you see this a lot:

"I've got this great idea to be the next $BIG_SITE. I need you to build a site for me - it should only take 3 months or so. Meanwhile, you can crash on my couch, and get N% equity.".

Now, I know the stereotype in the Valley is to work for equity for a company for N months on the hope that the company will make it big and you'll be rich.

Does the startup in question have to worry about minimum wage laws?

Also, while I understand that overtime is not a factor in professional services, if you manage to have a salary of (min wage * 40 hours a week), is the company breaking the law if you end up working an 80 hour week for the same rate (thus the actual hourly pay would be 1/2 min wage)?

I know about the Are co-founders employees question, but the answer there seemed to be hand-wavey. Also, what if the person in question is not a co-founder?

Edit: I found a lot of articles online that talk about needing to pay minimum wage, or risk running into California labor laws, but no actual reference to the labor code in question. Even just that would be helpful.

Equity Legal Salary Payroll

asked Nov 15 '11 at 10:12
Blank
Ryan Wilcox
183 points
  • I added to the cited Q an answer that is not hand-wavey. – Dana Shultz 7 years ago

3 Answers


3

I do not know CA law specifically, but independent contractors are usually not subject to minimum wage requirements. I found this page on CA's government website http://www.dir.ca.gov/dlse/faq_independentcontractor.htm and it seems to agree with what I know of FL law.

So, if the person designing your website is an independent contractor working in exchange for shares of the company, you should be good. But pay attention to what makes someone an independent contractor. Just because you call someone an independent contractor doesn't mean the state will consider them an independent contractor.

answered Nov 15 '11 at 11:08
Blank
Stephen Burch
915 points

1

Classifying a worker as an independent contractor can be complex. The IRS and individual states say,the general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. In other words, you cannot tell them when, where, or how to perform the work.
Overtime is always a factor when a person is non-exempt (hourly). How to calculate varies by state. There are specific rules regarding hourly (non-exempt) and salaried employees (exempt).
If a W-2 employee does not have direction and control over his work, he's hourly.

Not complying is costly. Employers get in trouble on these issues often.

answered May 26 '12 at 02:43
Blank
Dennis Tarrant
66 points
  • Hi. Thank you for your answer, but I'm confused about what in my original question made you think this was an employee vs contractor issue. – Ryan Wilcox 7 years ago
  • ... oh, I see, given the accepted answer by Stephen. I agree with your advice about misclassifying workers, and believe that would be an easy trap to fall into (miscategorization). I've seen paid projects often fall into that trap - I would think it would be even harder to prove independent contractor status in a stereotypical 80 hour/week startup. – Ryan Wilcox 7 years ago

1

Many factors go into determining whether an individual is an independent contractor (minimum wage does not apply) or an employee (minimum wage does apply). Federal and state law are somewhat different; there is no federal statute or CA Labor Code section that controls concerning this issue.

I recommend that you start with Avoiding the "Independent Contractor" Trap and follow the links to other posts from there.

Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.

answered May 26 '12 at 10:43
Blank
Dana Shultz
6,015 points
  • Would minimum wage apply to a salaried (overtime exempt) employee? – Ryan Wilcox 7 years ago
  • I would also say that there's one example that proves my question very well: Steve Jobs was famous for accepting $1/year of salary(?) for being the CEO of Apple, Inc. I can't imagine that he was classified as an independent contractor. (For one, the IRS would have been looking very carefully at the contractor vs employee issues in such a large company). So, what would have his official status have been? – Ryan Wilcox 7 years ago

Your Answer

  • Bold
  • Italic
  • • Bullets
  • 1. Numbers
  • Quote
Not the answer you're looking for? Ask your own question or browse other questions in these topics:

Equity Legal Salary Payroll