Start-Up Launchpad Blog

How Do I Pay These Guys, Now that I Have Got Them? - August 25, 2011

Jo Ellen Whitney

Jo Ellen Whitney, Health and Employment LawFor many start-up companies, it can be a difficult determination how to pay the talent that you need.  The celebrated and much publicized $1.00 salary for mega company CEO's clearly doesn't figure in stock ownership, perks of the business and the variety of benefits that a CEO of a large well-funded and successful corporation would receive, nor is it strictly legal in some circumstances.


When it comes to startups or maintaining a newer business, it is important to understand how the law, rather from publicity, actually works.  The wage hour law requires certain minimum payments.Typically, this is going to require that all employees receive at least minimum wage for the services that they provide to the company.  There are certainly a wide number of exemptions which relate to how much an employee is paid and whether or not an employee is paid hourly or qualifies for overtime. In general, these exemptions may require such things as managing two or more employees which, given a limited start up workforce, may not be possible. They also require a number of other items including earning a minimum of $455 per week for the work done. These elements can be found in Section 13(a)(1)of the Fair Labor Standards Act (2004). 

When you are looking at computer programming and analysis the employee test for wages can be even more complicated because it is $455 per week, or if the employee is compensated on an hourly basis, he/she cannot be compensated a rate less than $27.63 an hour in order to qualify for this exemption. There can also be regulations in each state which relate to how wages are paid including setting minimum wage rates as well as potentially tweaking how the exemptions apply. 

In Iowa, in general, the state wage payment and collection laws track the Fair Labor Standards Act pretty cleanly and there aren't significant differences in wage rates and requirements at this time. Iowa Code 91(a) does relate to how wages are paid and there can be issues in determining how certain benefits such as paid time off are calculated and whether or not those benefits are paid upon termination.   

So what happens if you own the company? There is an exemption for how much a person must be paid for those people who are active managers and owners of the company.  If an employee is acting as a "bona fide executive" or business owner of the company and the employee owns a 20 percent equity interest in the enterprise, then the law indicates that the employee does not need to be paid the minimum wage rate specified in the Fair Labor Standards Act, 29.CRF.section 541.101.  What you own and how you run it can also come into play since significant stock restrictions can impact on the 20% calculation.  Start-up companies or owners of unconventional companies with non-traditional management structures need to be careful to make sure that their employees are earning minimum wage or if applying the exemption that they are earning no less than $455 per week for the week if those employees are not active owners with a 20 percent interest in the company.


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