Can I pay my employees solely with equity?

Takeaway: No. U.S. wage and hour laws require employees to be paid in cash—equity can supplement but never replace the minimum cash compensation owed under federal and state law.

For cash-strapped founders, the idea of offering only equity instead of salary is appealing—but it’s a clear legal violation. Federal and state labor laws are explicit: employees must be paid in cash for their work, and equity grants cannot satisfy those obligations.

The Law: Wage and Hour Requirements

Under the federal Fair Labor Standards Act (FLSA) and similar state laws:

  • Minimum Wage: Non-exempt employees must receive at least the applicable federal, state, or local minimum wage in cash for every hour worked.

  • Overtime: Non-exempt employees must also receive overtime pay (usually 1.5× their regular rate) for hours over 40 in a week.

  • Equity ≠ Cash: Stock options, RSUs, and other equity awards are considered property, not wages, and do not count toward minimum wage or overtime requirements.

Exempt vs. Non-Exempt Employees

“Exempt” employees—such as certain executives, professionals, and administrators—are not entitled to overtime, but they still must:

  • Pass a duties test for their role.

  • Receive a minimum weekly salary in cash (the threshold varies by jurisdiction).

The Unpaid Intern Trap

The rules for truly unpaid internships are narrow. In most cases, interns performing real work are employees and must be paid at least the minimum wage in cash. Offering “equity-only” internships is almost always illegal.

The Co-Founder Exception

True co-founders are owners, not employees, and can forgo cash compensation in the early days. But the moment you hire a bona fide employee, you must run payroll and meet all wage and hour obligations.

Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.