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Question added to topic MoneyAugust 22, 2013

How Can I Keep an Employee I Cannot Afford to Pay?

I just opened a new business six months ago. Right now, I am finding it difficult to pay my key employee the money he deserves. This employee has been very understanding, even asking me to pay a low hourly wage or salary, even pay him in the form of perks (like gift cards). He is not only working at least 60 hours a week but is extremely dedicated to my vision, business and customers. I need this employee and truly want to keep him, but I can't afford to pay even close to what he's worth along with the additional taxes I am charged. What are my options here?

You are certainly in a tough spot. Seems as though you cannot afford to pay this person and you cannot afford to do without him—especially if he is working 60 hours a week. I don’t like being the one to tell you this; but the concern I initially had when I read your question was what his job is and whether he is non-exempt (i.e., covered by the Fair Labor Standards Act which requires you to pay him at 1 ½ times his normal hourly rate for working over 40 hours in any workweek). His status (i.e., exempt or non-exempt) is determined by the actual work he does for you versus his job title. So generally speaking, if he is not a licensed professional, or not making substantive business decisions, or not supervising at least two full-time employees or equivalent, or otherwise classified as an exempt employee, you need to pay him overtime. Paying him with gift cards and so forth does not “fly” if he is a non-exempt employee, either; and if his job is exempt, you should be paying him at least $455 per week. I realize that this does not help you regarding how to keep him without paying him; but it is important for you to know so that you do not inadvertently break the law to your eventual detriment.

It does not sound to me as though you have an option to make this person anything other than a full-time employee. That is, nothing you said indicates to me that he is a contractor (i.e., 1099 worker). Far from it. He works for your company more than 100% of the time. The only good news seems to be that he is so dedicated and willing to work with you about his compensation. You might be able to work out an arrangement regarding equity in your company for him. Otherwise, I do not see a valid way to keep him on board for the longer term without paying him properly.

Penny is a seasoned human resources executive and consultant with over 25 years of diverse business experience in advising enterprise leaders on employment-related matters.

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