I was speaking at a conference recently and was asked a question. The company is a start up and cannot afford to pay national minimum wage to employees, but still requires help. Can it defer payment until they are profitable? Perhaps by giving the people shares instead.

The first thing to note is whether these people are truly employees are not. I suspect they are, and so in the UK, the employer must by law pay the national minimum wage and there is no escaping that. HMRC has an Employment Status Tool which is useful, although it obviously depends on the data you put in as to whether you get the right result.

However, that means you could recruit higher end staff who might ordinarily want £30,40,50k etc and pay them a reduced salary.

But you cannot NOT pay them NMW.

What can you do to ‘top up’’ their package is to give them shares or share options, including through an EMI Scheme.

Giving employees shares can be tricky and needs to be done with thought and legal documents in place.

Share options are where you grant an employee the ability to buy shares at a certain price (called the strike price) after a certain period or after certain conditions are met. For example, you could give them the ability to buy shares at £5 per share and let says after a year the company gets funded and is worth £1m with 100,000 shares in play, valuing each share at £10.00. They are in effect getting a discount of 50% of the share price. What often happens is the company or the founder fund the employees purchase at £5, and then they immediately sell them back at £10, thus realising a capital gain immediately.

I have difficulty in the concept of having ‘staff’ paid wholly through shares where they have made no financial investment into the business, and so I would say paying national minimum wage is a must. However, if you have ‘founders’ whose are genuine owners of the company holding shares and carrying all the risk, then of course you can not employee them or pay NMW. They are in effect self employed.

This is a tricky issue, and one which will need an assessment of the intended roles. I would urge you to take quality legal advice from someone like me. Get in touch if you need help.