Minimum Wage optional?

HappyMJ

Froggitt wrote: »

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?

Why don't you borrow the money to pay his wages?

That's what most business do in the first few years of operation when they are in the loss making phase of a startup.

If you can't pay wages you've got yourself a cashflow problem which needs sorting and a loan can defer and temporarily resolve a cashflow problem until you get the revenue to pay back the loan.

Froggitt

ScorpiondeRooftrouser wrote: »

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.

I would like to give him a percentage based on the amount work he does.

TBagpuss wrote: »

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)

Agree

HappyMJ wrote: »

Why don't you borrow the money to pay his wages?

No-one would lend speculatively. I don't pay myself any wages.


We are hoping to get an investor for about £150K for a percentage. There are a few people in a similar field who would be ideal.

I am happy to give him first call on any income we get from sales, above my wages, once a sale is made.

I am thinking about giving him an option to convert his "earnings" into shares at the same rate that an investor would get e.g. if an investor pays £150K for 15%, then he would optionally convert say £50K of wages (at say £30 an hour) into 5%.

Thoughts?

Froggitt

Darksparkle wrote: »

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

I think this approach works.

CrowCrow

Froggitt wrote: »

I am happy to give him first call on any income we get from sales, above my wages, once a sale is made.

Thoughts?

You're taking the p!ss.

getmore4less

Froggitt wrote: »

We are hoping to get an investor for about £150K for a percentage. There are a few people in a similar field who would be ideal.
..........
I am thinking about giving him an option to convert his "earnings" into shares at the same rate that an investor would get e.g. if an investor pays £150K for 15%, then he would optionally convert say £50K of wages (at say £30 an hour) into 5%.?

How much IP is there now?

When do you think you will have a £1 million+ business to get investment at those rates.

you will need to have very clear forward revenue projections to get that sort of investment unless someone is very generous with their money.


Your problem is with a start up the time investment gets no where near the same rate as cash investments if you value yourselves all at £30ph you will have eaten a £1m in no time
Its only around 1100hrs each 20hrs a week each for a year.

What does the business plan have for end of first year revenue?

ScorpiondeRooftrouser

Froggitt wrote: »

I am thinking about giving him an option to convert his "earnings" into shares at the same rate that an investor would get e.g. if an investor pays £150K for 15%, then he would optionally convert say £50K of wages (at say £30 an hour) into 5%.

Thoughts?

Thoughts?

You are asking for investment as a big business and trying to pay out as a one man speculative start-up, are my thoughts.

Froggitt

CrowCrow wrote: »

You're taking the p!ss.

???

I'm not taking anything before paying him - how is that taking the p1ss?

HappyMJ

Froggitt wrote: »

No-one would lend speculatively. I don't pay myself any wages.

Of course they will that's what banks do. They lend to businesses. That's how they make money. Do you have anything to secure the loan such as a house?

ScorpiondeRooftrouser

Froggitt wrote: »

???

I'm not taking anything before paying him - how is that taking the p1ss?

You said..

"I am happy to give him first call on any income we get from sales, above my wages, once a sale is made."

Which could mean you are going to pay him from the income from sales which is above your wages; that is, you will take your wages out first.

If you meant that you will prioritise paying him above paying your wages, that's different.

pjread

I have no idea how large this is and it sounds probably too small to bother with (perhaps) but I guess you're talking about a ltd co; so it crosses my mind you might be able to get him to buy in a token share, sit voluntarily on the board/as a NED then issue the guy preference shares or options or something based on 'contribution'....?