Minimum Wage optional?

Froggitt

I am aiming to start up a new business with an ex-colleague of mine. We are not paying each other for the work we are currently doing in setting up the business, but will own 50% each of the company, and hopefully in the future, it will pay wages/dividend to us.

In order to speed up the growth, we are considering using another ex-colleague to do some work. We can't pay him at the moment. want to structure it so that depending on the amount of work he does, we will pay him (well) out of future revenues if/when they arrive.

Obviously he would have to be happy with this, but is there anything (eg minimum wage) stopping us from this arrangement? Is the answer any different if we cut him in for a percentage of the business instead of being paid?

getmore4less

The issue you have with the proposal is he takes all the risk if you base it on set reward for time invested but only when the company makes some money.

PasturesNew

If he is self-employed he can bill you. Then he can choose whether/not to chase up those invoices at some future point if he thinks you're done him over.

But, to be self-employed, he'd need to be actually self-employed (as defined by HMRC) which has a ticklist. And he'd need to be registered with HMRC.

You can't employ/pay somebody less than minimum wage (legally) for any reason.

It's either employment, NMW. Or it's not - and if it's not, then it needs to be a legally recognised "other route" such as self-employment.

If he invoices you for the work done .... then he can sue you and come after your goodies.

If he's doing work for you, on the speculative hope of profits, then he needs to either be a recognised partner, or you're just taking the pee.

Froggitt

getmore4less wrote: »

The issue you have with the proposal is he takes all the risk if you base it on set reward for time invested but only when the company makes some money.

That is correct. I also only make some money when the company does.

However
a) it could be a great long term opportunity for him
b) noone is forcing him to take this "risk"

Froggitt

PasturesNew wrote: »

If he is self-employed he can bill you. Then he can choose whether/not to chase up those invoices at some future point if he thinks you're done him over.

But, to be self-employed, he'd need to be actually self-employed (as defined by HMRC) which has a ticklist. And he'd need to be registered with HMRC.

You can't employ/pay somebody less than minimum wage (legally) for any reason.

It's either employment, NMW. Or it's not - and if it's not, then it needs to be a legally recognised "other route" such as self-employment.

If he invoices you for the work done .... then he can sue you and come after your goodies.

If he's doing work for you, on the speculative hope of profits, then he needs to either be a recognised partner, or you're just taking the pee.

Is "recognised partner" a definable term? I am happy to give him a stake in the business, but only relative to the effort he puts in e.g. I don't want to give him 20% if he just does an hours work.

bargainbetty

Then pay him an hourly rate for his work. You can't have it both ways.

getmore4less

Froggitt wrote: »

That is correct. I also only make some money when the company does.

However
a) it could be a great long term opportunity for him
b) no one is forcing him to take this "risk"

It what way?
It is just a job at the end of the day the way you first put it with just potential delayed pay.

Are you prepared to forego any payment till his debt is paid first?

what to stop you doing a Phoenix

One way to allow him to protect his interest is for him to have a share/ownership of any IP he creates for the company.

Depending on where you think this will go any "gentlemens" agreements will be out the window if you ever try to get investors.

If you need more bodies either share out the work on a similar basis or just pay people.

Leo2020

bargainbetty wrote: »

Then pay him an hourly rate for his work. You can't have it both ways.

This exactly. You want someone to work for free on the hope that they might get paid in the future. Unless they are a partner then I hope they tell you no. Otherwise i would think they are crazy.

Darksparkle

You can only get out of NMW obligations if he is genuinely working on a self employed basis or a volunteer.

To be accepted as a volunteer they;
- Provide their time and effort completely freely
- Can come and go as they please
- Are under no obligation to provide their services
- Cannot be made to perform any specific duties
- Do not suffer any sanctions if they do not perform their volunteer duties

ScorpiondeRooftrouser

There's nothing to stop you giving him as small a percentage as both of you think is fair.

Of course after you give him that percentage you can't take it back if you don't like what he's doing, or if he stops doing anything at all. So don't expect a massive commitment for a 2% stake.

TBagpuss

You need to have a formal partnership agreement. In that, you would set out what each of you is commiting to (in terms of time, investment etc) and what each of you will be entitled to (in terms of % of the profits)

If you start it as a compnay you need a proper shareholders agreement and articles.

Your friend is free to offer to do work for you as a subcontractor and as such, you and they can agree on whatever terms for payment you both wish, this could include agreement to pay after x months, to give you time to save up.