Can you hire early employees for equity-only compensation?

Question

Description:

Is it legal or practical for startups to bring on full-time team members who receive only stock or options instead of cash pay? What should founders know about labor-law and minimum-wage compliance, tax implications for recipients, vesting schedules, and how equity is valued at early stages? When is equity-only reasonable versus offering a modest salary plus equity, and how can founders structure offers to attract and retain talent while managing risk?

7 Answers

Sort by:

Lydia Griffin 11 Aug 2025

Copy answer link Report answer
equity-only hires rarely work unless cofounder. consider phantom equity or deferred salary converting to equity at fundraise instead...
25
B. F. 30 Oct 2025

Copy answer link Report answer
Beyond legality, it's important to consider the psychological impact on your team—people may feel undervalued or stressed without steady income, which affects productivity and retention. One approach is offering a small guaranteed stipend that covers basic living expenses combined with equity to align incentives while respecting legal boundaries. Also, founders should clearly communicate how equity might dilute over time and what milestones trigger vesting to maintain transparency and trust...
17
Anonymous 31 Oct 2025

Copy answer link Report answer
Hiring early employees for equity-only compensation is tricky but can be done in specific situations. Legally, many places require at least minimum wage for full-time work, so purely equity might violate labor laws. However, some startups use part-time or contractor arrangements with equity to avoid this.
Tax-wise, recipients should consider the timing of exercising options and potential 83(b) elections to minimize tax burdens. Founders need clear vesting schedules—usually four years with a one-year cliff—to protect both parties.
Equity-only works best when candidates strongly believe in the mission and have financial flexibility. Offering a small salary plus equity often broadens your talent pool while managing risk better. Structuring offers transparently helps build trust and retention over time.
12
Anthony Phillips 3 Dec 2025

Copy answer link Report answer
No, equity-only compensation for full-time hires often breaks labor laws. Minimum wage rules apply in most jurisdictions. Risk fines and lawsuits by ignoring this. Use tools like Gusto or Rippling to manage payroll compliance early.
Example: At a startup I advised, they tried equity-only offers—ended up paying back wages and penalties. Instead, offer modest salary plus equity using Carta for cap table and option management. Always implement vesting schedules with cliffs (e.g., 4 years with 1-year cliff). Structure offers transparently to avoid tax surprises; advise
10
C. D. 20 Nov 2025

Copy answer link Report answer
Actually, the term "equity-only" compensation often overlooks the intricate legal distinction between stock options and restricted stock grants. Stock options typically have no immediate tax event but require exercising later, while restricted stock may trigger taxable income upon grant unless an 83(b) election is filed promptly. Founders should also consider securities law compliance when issuing equity to employees, as exemptions vary widely depending on jurisdiction and can impose significant regulatory burdens if not carefully navigated.
8
Anonymous 8 Dec 2025

Copy answer link Report answer
Check local labor laws before offering equity-only pay; most jurisdictions require minimum wage for full-time work, risking fines and lawsuits. Use payroll platforms like Gusto or Rippling to ensure compliance. For example, a startup I consulted tried equity-only hires and faced back wage claims—switched to modest salary plus equity via Carta to retain talent legally and transparently. Include clear vesting schedules and educate candidates on tax implications like 83(b) elections. Avoid treating equity as guaranteed cash; it’s a long-term incentive, not immediate income.
4

Want to answer?

Join the conversation and help others by sharing your insights.

Log in to your account or create a new one — it only takes a minute and gives you the ability to post answers, vote, and build your expert profile.

Log in or Register ›

How we moderate answers

We manually review all contributions to ensure that every answer provides clear, actionable, and professionally relevant guidance. We prioritize responses that show practical experience, cite real examples, or demonstrate familiarity with hiring, skills, and job-market trends. Low-quality, duplicate, or AI-generated content that lacks substance is filtered out to maintain accuracy and credibility across the platform.

What makes a high-quality answer

A high-quality answer offers structured, practical, and experience-based guidance that directly addresses the question. Strong answers include specific steps, industry examples, tools or frameworks, and clear reasoning rather than vague opinions. They avoid emotional language, personal journaling, or lifestyle advice, and instead focus on skills, responsibilities, hiring expectations, resumes, interviews, salary insights, and career transitions. Answers written by individuals with verified professional backgrounds or direct experience in the field are prioritized.

Expert participation rules

Experts participating in Q&A must base their answers on real professional experience, not speculation or generic statements. Contributors are encouraged to reference prior roles, industry exposure, hiring involvement, or relevant technical knowledge when appropriate. All expert responses must remain objective, neutral, and career-focused, avoiding promotional content, personal anecdotes, or lifestyle guidance. Verified experts may receive enhanced visibility on the platform, but only if their contributions consistently meet our quality standards and align with Jobicy’s career-focused topic guidelines.

Accepted Answer · 2025-08-12T13:50:32+00:00

Why do you imagine someone would trade guaranteed cash for a promise that may never pay off, and have you considered how that shapes the candidate pool and incentives? Have you checked whether your jurisdiction treats unpaid full time work as minimum wage violations or creates payroll and withholding obligations when equity is issued as compensation? What about visa holders who legally need wage statements or the team member who cannot afford to eat while waiting for a liquidity event? Could a small stipend, milestone cash, or a restricted stock purchase with an 83(b) option and clear repurchase rights be a less risky attractor while keeping your runway intact?