By Stefan Chelper, Lawyer
Whilst starting a business can be an exciting time, it’s important that the legal side of things are appropriately taken care of. I will briefly touch on one such legal aspect that needs to be addressed early on in the piece.
A common challenge facing many startup companies is paying their employees. On more than one occasion, I have heard the founder (employer) behind a startup say something along the lines of “I am not paying my workers a regular wage, they are getting paid in equity instead”.
The employment law landscape in Australia simply does not allow for people to work and not receive remuneration. In accordance with the Fair Work Act (2009), an employee must be paid minimum wage and also be provided with all of their entitlements (e.g. annual leave, sick leave, superannuation). By not complying with the Fair Work Act, employers potentially open themselves up to claims from their employees later down the track. An employer is especially vulnerable in circumstances where the startup is ultimately unsuccessful and there are a litany of disgruntled employees left in the wake.
In order to minimise risk and ultimately abide by the law, it is imperative that the required wage and entitlements are paid to all employees.
If the payment of the minimum wage and entitlements is undesirable, a founder may wish to engage the services of a contractor/s as opposed to hiring employees. Contractors do not need to be paid a minimum wage nor the usual employee entitlements. Though, negotiating an arrangement where a contractor will receive equivalently less than the minimum wage may be an impossibility.
One must also be careful that the person hired is in fact a true contractor and not an employee under the façade of a ‘contractor’. This legal classification boils down to independence and control - contractors often have the freedom to determine how a certain job should be done. Ensuring that a person is in fact a contractor and not an employee is very important and legal advice should be sought from a lawyer in that regard.
At Law Squared, we partner with passionate entrepreneurs and businesses who need our technical help and expertise. We’d love to have a chat with you, so feel free to drop us an email firstname.lastname@example.org
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