4 ms·

Ianal but tons of startups forego salary when times are tight (a month or two) and a bootstrapped startup isnt paying anyone until money starts flowing. What's

by kzhahou 11y ago

Ianal but tons of startups forego salary when times are tight (a month or two) and a bootstrapped startup isnt paying anyone until money starts flowing. What's illegal here?

nostrademons 11y ago
Minimum wage laws. It's technically illegal, but it's a civil penalty, not criminal, and so the employee has to sue to claim damages. And if the company doesn't have money to pay salaries, they aren't going to have money to pay out damages to a lawsuit - a victorious plaintiff just goes to the top of the creditor list when it comes to fighting over the carcass. [Edit: "Willful" violations may also be prosecuted criminally, although again, this usually requires that somebody report it. [2]] It's a calculated risk for many founders. They're one disgruntled employee away from a company-ending lawsuit, but usually if they're not paying salaries then they're a paycheck or two away from a company-ending bankruptcy. And once money comes in, good founders will usually pay back all the back wages to avoid that lawsuit. (This is also why founders should pay themselves minimum wage - I've had a (Massachusetts) lawyer tell me this, and YC's legal counsel also suggested it in their "How to start a startup" lecture [1]. Yes, this also means you have to pay taxes on the money you're paying yourself. This is one of the few good arguments against incorporating before there's money coming in.) [1] https://www.youtube.com/watch?v=EHzvmyMJEK4#t=1980 https://www.youtube.com/watch?v=EHzvmyMJEK4#t=1980 [2] http://www.dol.gov/general/topic/youthlabor/enforcement http://www.dol.gov/general/topic/youthlabor/enforcement
- dragonwriter 11y ago
  The employee may not have to sue themselves; both the federal and many state governments have agencies that take wage and hour complaints and pursue employers on behalf of employees. "Civil" does not imply "not pursued by the government".

by kzhahou 11y ago

Ianal but tons of startups forego salary when times are tight (a month or two) and a bootstrapped startup isnt paying anyone until money starts flowing. What's illegal here?

nostrademons 11y ago

Minimum wage laws. It's technically illegal, but it's a civil penalty, not criminal, and so the employee has to sue to claim damages. And if the company doesn't have money to pay salaries, they aren't going to have money to pay out damages to a lawsuit - a victorious plaintiff just goes to the top of the creditor list when it comes to fighting over the carcass. [Edit: "Willful" violations may also be prosecuted criminally, although again, this usually requires that somebody report it. [2]] It's a calculated risk for many founders. They're one disgruntled employee away from a company-ending lawsuit, but usually if they're not paying salaries then they're a paycheck or two away from a company-ending bankruptcy. And once money comes in, good founders will usually pay back all the back wages to avoid that lawsuit. (This is also why founders should pay themselves minimum wage - I've had a (Massachusetts) lawyer tell me this, and YC's legal counsel also suggested it in their "How to start a startup" lecture [1]. Yes, this also means you have to pay taxes on the money you're paying yourself. This is one of the few good arguments against incorporating before there's money coming in.) [1] https://www.youtube.com/watch?v=EHzvmyMJEK4#t=1980 https://www.youtube.com/watch?v=EHzvmyMJEK4#t=1980 [2] http://www.dol.gov/general/topic/youthlabor/enforcement http://www.dol.gov/general/topic/youthlabor/enforcement

dragonwriter 11y ago
The employee may not have to sue themselves; both the federal and many state governments have agencies that take wage and hour complaints and pursue employers on behalf of employees. "Civil" does not imply "not pursued by the government".