Paying a first team before funding: the options and what each risks
Ways early founders pay first helpers without outside funding: fixed fees, wages, deferred pay and shares, what each risks and what to put in writing.
As of 2026-10-10, this is general information, not legal or financial advice. Employment, tax and equity rules depend on where the people live and work. Ask a lawyer and an accountant licensed where you operate before you agree to pay anyone anything.
A founder who wants help before the company has outside money has a short list of ways to pay for it. Each way gives away something different: cash that is scarce, ownership that is hard to take back, or time that someone else will remember. None of them is costless, and none is the right one for every case.
This article describes the common options and what each one risks. It does not say which to use, what to pay or how much ownership to offer, because those answers depend on facts about the people involved. It is written for people working alone, or for first-time founders, who may be agreeing to these terms for the first time. It says nothing about any particular company’s seats or programs.
The options side by side
| Option | What it is | What it asks of you | The main risk |
|---|---|---|---|
| Fixed-fee contract | A person is paid a set amount for a defined piece of work | Money when the work is delivered, and a clear description of the work | A relationship that the law treats as employment; ownership of the work left unclear |
| Wages | A person is hired as an employee | Regular pay, payroll tax registration and paperwork | A fixed cost that continues whether or not revenue arrives |
| Deferred pay | Some or all pay is promised for later, often when money arrives | A written promise and the discipline to keep it | A debt that grows quietly, and a dispute if the company stops |
| Shares or options | A person receives an ownership interest instead of or beside cash | Legal work, valuation and tax questions | Dilution that cannot be undone, and tax due on something that is not cash |
| Revenue share | A person receives a percentage of income from a defined source | A definition of the income and how it is calculated | Arguments about what counts, and a promise that outlasts the project |
| Unpaid help | A friend or volunteer contributes time without pay | Honesty about what is being asked | A person who later believes they were promised something |
Read the table as a list of trade-offs. Several may fit together, such as a fixed fee plus a small ownership interest.
Fixed-fee contracts
A contract for a defined deliverable is the simplest to understand and the easiest to get wrong. The first risk is classification. The IRS says that the facts that show the degree of control and independence fall into three categories. It also says businesses must weigh all these factors when determining whether a worker is an employee or an independent contractor. The word “contractor” on a page does not settle it. If you direct when, where and how the person works, supply the tools and expect the relationship to continue indefinitely, the facts may point the other way.
Ask counsel and an accountant:
- Does this arrangement look like contracting or employment where the person lives and where I operate?
- What do I report, to whom and when?
- What does the contract say about the work product: who owns it, and from what moment?
The last question is a separate risk. In United States copyright law, copyright in a work vests initially in the author or authors of the work, and the article on intellectual property and access diligence shows how a later reviewer will check who wrote what. A person who writes your code may therefore hold rights in it, so ask counsel what written assignment you need, and collect it before the work begins rather than after.
Wages
Hiring an employee brings obligations that go beyond the pay itself: registrations, withholding, reporting, workplace rules and sometimes insurance. The attraction is clarity. The risk is a fixed cost that continues when income does not. Ask an accountant what the true cost of one hire is where you operate, including the items beyond salary, and ask what happens if you cannot make a payroll.
Unpaid help
Friends, classmates and former colleagues often offer to help for nothing. The goodwill is real, and so is the question of what it means in law. In the United States, the Fair Labor Standards Act defines “employ” as including to suffer or permit to work. That definition is broad, and whether a particular unpaid arrangement is lawful depends on the facts and the place. Do not assume that an unpaid helper is outside the rules because nobody is being paid. Ask counsel what applies, and treat unpaid work as an arrangement that deserves a written description like any other.
The practical risks are softer. A helper who gives time and later feels overlooked is a larger risk than the work was worth. Say plainly what is being asked, what is not being offered and what you will do if the project grows.
Deferred pay
A promise to pay later is a loan of the person’s time. It protects cash today and creates a liability tomorrow. Questions to write down before agreeing:
- What is the amount, and when does it fall due?
- What triggers payment: a date, a sale, a round of funding?
- What happens if that trigger never occurs?
- If the company closes, is the debt still owed?
- Is the person an employee? Rules about paying employees on time, and about what may be deferred, vary by place and are for counsel.
A deferral that is never recorded becomes a disagreement when the money arrives. Keep a running ledger that both sides can see.
Shares or options
Ownership can look costless, because no cash leaves today. It is not costless. It gives someone a permanent claim on what the company becomes, and it brings legal and tax questions at the start.
Equity is the ownership interest in a company, usually held as shares, and an option is a right to buy shares at a set price later. A grant of either in return for services is a general arrangement, described here as a concept and not as an offer.
On the tax side, United States law provides that when property is transferred in connection with the performance of services, an amount shall be included in the gross income of the person who performed such services in the first taxable year. In plain terms, a person who receives shares for work can owe tax even though no cash changed hands. How that applies to a given grant, and what the company must do about it, are questions for a tax adviser before anything is issued.
The article on joining as a founding team member lists the questions the person receiving shares should ask. Questions from the founder’s side:
- What percentage am I giving away, and what does the ownership table look like afterwards?
- How does it vest, and what happens if the person leaves early?
- Is a written agreement in place before the work begins?
- How will future investors view this grant?
- Who values the shares, and how?
Dilution cannot be reversed by good intentions. A small grant to the first helper can sit in the ownership table for the life of the company, so ask what it would take to correct it if the relationship ends badly.
Revenue share
A share of income is attractive because it costs nothing until money arrives. Its weakness is definition. Revenue from what, net of which costs, paid on what schedule, for how long and with what right to see the books? Write the formula in a sentence that a stranger could apply, and set an end date. A revenue share that outlives its purpose becomes a quiet claim on whatever the company turns into.
Paying from customer money
Some founders pay helpers out of what early customers pay. That connects to the choices in the article on founder-led sales to your first ten customers, and to the questions about prepayment in the article on customers as capital. Money paid for a promised delivery is not spare cash, and spending it on helpers while the delivery is outstanding creates a risk of its own.
A short list for any arrangement
Whichever option, a few written items prevent most later disputes:
- Who the parties are, as legal persons.
- What is being done, described so that both sides would agree it is finished.
- What is paid, and when, in cash, deferral, shares or a share of income.
- Who owns the result, and the document that transfers it.
- What stays private, and for how long.
- How it ends, including notice and what happens to anything unpaid.
- Which law applies, and who each side will ask for advice.
The article on questions to ask your counsel before you sign carries a general list that can be used here.
What this article cannot tell you
It cannot say which option fits your company, what to pay, how much ownership to offer or whether you can afford a team. The four sources cited are an IRS page on worker classification, one section of the U.S. Internal Revenue Code, one section of the U.S. Fair Labor Standards Act and one section of the U.S. Copyright Act; they describe United States rules only. They do not cover employment, payroll or equity law in other countries, state wage rules, benefits, insurance, immigration, minimum pay or the tax treatment of any specific grant. The article gives no rate, no percentage and no schedule, because none of the cited sources sets one and because each depends on the people and the place. Treat it as a list of questions to bring to a lawyer and an accountant, not as a recommendation.
In the data
These figures describe U.S. businesses in general, not WE’s results. Each one names its source.
Show the data as a table
| Arrangement | Share of total employment (people) |
|---|---|
| Independent contractors | 7.4% (11.9 million) |
| On-call workers | 1.7% (2.8 million) |
| Temporary help agency workers | 0.6% (945,000) |
| Workers provided by contract firms | 0.5% (862,000) |
Sole or main job only. The survey category is not a legal test: classification depends on the facts and on the law that applies.
Source: U.S. Bureau of Labor Statistics, Contingent and Alternative Employment Arrangements , July 2023
Retrieved 2026-10-16. Values are quoted from the release, copied as printed.
Sources
- Independent contractor (self-employed) or employee?, Internal Revenue Service . Accessed October 10, 2026.
- 26 U.S. Code section 83, Property transferred in connection with performance of services, Legal Information Institute, Cornell Law School . Accessed October 10, 2026.
- 29 U.S. Code section 203, Definitions, Legal Information Institute, Cornell Law School . Accessed October 10, 2026.
- 17 U.S. Code section 201, Ownership of copyright, Legal Information Institute, Cornell Law School . Accessed October 10, 2026.
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