

Ask HN: Is being underpaid/working for free normal in SV? - aledalgrande

I am seeing quite a lot of cases of friends (especially in non-tech roles) that go to work for startups for no money, or for very low money, or even worse for an agreed amount of money that then doesn&#x27;t get payed or gets payed late.<p>Now you can tell me everything about how it is worth to risk it for a hot startup etc. etc. but that is 1% of startups or less. 2% of 0 is 0 (yes, that equity is worth nothing in most of the cases). Myself being at the first stage of a startup, I understand how important it is for the founder to have success and fast, but I don&#x27;t think it should be at the expense of other people. See what this guy wrote in a response email to an application:<p>&quot;Is deferred cash&#x2F;options ok, payable when revenues rise over $410k?<p>All 30 of our Team work this way because of our huge potential and momentum indexing 271 Million products – click below signature in red for details.&quot;<p>Really? You have 30 people working for free until unknown date? And what is the current revenue? Deferred raise is one thing, but deferred cash is way out. No matter how much you romanticize it, your startup is just your baby, not the baby of your employees. If they didn&#x27;t need the money would they be there working 60 hours a week for your Amazon for Cats startup? Probably not.<p>There are a lot of these opaque&#x2F;shady deals, and people have to accept because of lack of jobs (always talking about non-tech positions). People need to work for money first, passion second. See Maslow&#x27;s hierarchy at the &quot;Safety&quot; level: http:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Maslow%27s_hierarchy_of_needs<p>I don&#x27;t think we should cover employees with gold, but heck, at least pay them decently, especially here in the Valley where the rent costs a kidney.<p>Do you agree?
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dangrossman
There is zero legal way to operate like that in the United States. If you
employ someone, you must put them on a normal payroll schedule, must pay them
at least minimum wage, and must begin withholding taxes and the other usual
payroll responsibilities. In California specifically, you must receive at
least two paychecks per calendar month. Failing to do any of that is a
violation of state and federal labor laws, and no contract/agreement/waiver
can supersede this -- you can't do employee work for free (or for promises of
future wages) even if you want to.

[http://www.dir.ca.gov/dlse/faq_minimumwage.htm](http://www.dir.ca.gov/dlse/faq_minimumwage.htm)

[http://www.dir.ca.gov/dlse/FAQ_Paydays.htm](http://www.dir.ca.gov/dlse/FAQ_Paydays.htm)

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aledalgrande
I totally get that, Dan. People are in need of a job and sometimes even the
perspective of a future salary lures them into unfair deals, so that's why
founders still can get away with no payment and not get reported.

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trcollinson
Is it normal? I have seen it a bit.

Have I been asked to code for free, at a substantially reduced rate, for
equity, and with really strange arrangements? Absolutely. At times I have been
asked to do this on a more than weekly basis. Do I ever accept the terms?
Absolutely not, never.

Have I started companies and asked people to do this? I have started
businesses, I always pay a rate that is fair because I believe the
relationships I have with people who sit in my office are important. I would
rather my idea fail then see an employee 5 years down the line whispers under
his breath "There is that #$%@@#$% who promised me the world and than didn't
pay up."

There are substantial ethical, and, maybe more important to some, legal risks
to have people work on your start up without being paid. Who owns their work
output? If they are not paid, are they covered in the case of physical or
emotional harm or accident? What tax liabilities are you under because of
their generosity? What tax liabilities are they under for taking deferred
payment or an investment in return for real goods or services? The list goes
on and on.

Putting on my employee or consultant hat the answer is simple. How do I value
my time? If I receive $100/hr from client A as agreed upon in writing, why
would client B, an underfunded start up, deserve my time at a lesser rate?
Many times I have said to a company who tries this tactic of saying "Can we
pay you X amount in Y months?", "No, I take $X per hour, and if you cannot
meet these terms, I understand. Please let me know before signing." They sign,
they pay, and everyone ends up quite happy.

As I suggest to engineers who I meet, know what your value is and charge for
that value. It is engineers who allow start ups to get away with these sorts
of practices.

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aledalgrande
Great insight about liabilities.

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mtmail
I can't believe 30 people fell for this.

Even if the revenue goal is met and there's a contract in place I expect a
guilt game to happen "If we pay out money/options now we're, I mean you're,
hurting our company because we could use the money to invest in indexing more
products." or being called greedy or not passionate enough.

~~~
aledalgrande
Exactly, and then how would he retroactively pay 30 employees salary for, say,
a year? It would surely bankrupt the company. I think 30 is bullshit.

~~~
Spoom
Someone willing to make this kind of deal with his "employees" is someone
willing to spin down the company as soon as revenues start to approach his
trigger value, and keep all the profits.

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AnotherMarc
Seems pretty shady. Deferred raise, or bonus based on revenues, would be fine.

I assume in this particular example, they mean to replace cash now with
options, but it's worded strangely. If you defer all cash (or everything over
min wage) with options, I'd consider that a founder.

If the startup is "hot" \-- and that's a definition everyone will have to make
for what matters to them -- you could consider maximizing equity and
minimizing cash. The odds are low, true, but you may still be able to
legitimately decide it's worth it. But pretty tough for me to imagine a
scenario where it's worth it for 30+ people to do.

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TheCoelacanth
No, that's not normal. There are two acceptable scenarios:

1\. You get paid.

2\. You are a co-founder and have a large share of the upside if the business
becomes successful.

Anything else is unacceptable and exploitative for a for-profit business to
ask for.

~~~
aledalgrande
I agree, e.g. you cannot be first employee 5% and no salary.

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MalcolmDiggs
Yes unfortunately situations like that are fairly commonplace, but that
doesn't mean there's anything fair/legal/proper about them.

I try not to take offense when someone makes me such an offer; I just lose all
confidence in their abilities. If you can't even raise/hustle/scrounge-up
enough cash to meet the legal minimum wage it's hard to have faith in your
abilities as a CEO.

I have no problem with the idea of taking a drastic pay-cut for a startup you
believe in, but there's a limit to how far your generosity should extend.

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partisan
If you take a look at the help wanted forums at gamedev.net, you see a lot of
propositions of this nature, "potential to pay after we get a deal with a
publisher". Basically, "work for me for free and if you have to think there is
money coming to work for me for free then go ahead and imagine it". The
gamedev crowd has gotten past this. Sadly, I think we will see more of this in
the startup world before people in that area get a healthy bit of skepticism
about these types of offers.

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aledalgrande
Found one: [http://www.gamedev.net/classifieds/item/3696-black-helga-
loo...](http://www.gamedev.net/classifieds/item/3696-black-helga-looking-for-
programmer/)

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moonka
I don't see how you'd even be able to do this. Wouldn't they have to pay
minimum wage? I imagine the DOL would come down pretty hard on them.

