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

16 points by aledalgrande ↗ HN
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't get payed or gets payed late.

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't think it should be at the expense of other people. See what this guy wrote in a response email to an application:

"Is deferred cash/options ok, payable when revenues rise over $410k?

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."

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't need the money would they be there working 60 hours a week for your Amazon for Cats startup? Probably not.

There are a lot of these opaque/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's hierarchy at the "Safety" level: http://en.wikipedia.org/wiki/Maslow%27s_hierarchy_of_needs

I don'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.

Do you agree?

14 comments

[ 8.1 ms ] story [ 69.8 ms ] thread
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.
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.

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.
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_Paydays.htm

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.
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.
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.

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.
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.