Can independent contractors get equity?

A startup may offer equity compensation to independent contractors in one of two forms: a grant of restricted stock or a stock option. The SEC provides a safe harbor exemption under Rule 701 allowing non-reporting companies to issue equity in the company as compensation to employees, consultants, and advisors.

Can a contractor be considered an employee?

It is even possible that a worker can be considered an independent contractor for purposes of IRS tax filing, but they are considered an employee under California’s wage and hours laws.

What is considered contract labor?

Contract labor, otherwise known as independent contractors, are simply workers who work under individual contracts and are never hired on full-time by a company (though they could work just as many hours as a traditional employee).

Can you give equity to a contractor?

Under SEC Rule 701, private companies are allowed to give stock compensation to employees, consultants, independent contractors, and other “de facto” employees.

How much equity should I give my contractor?

If you’re profitable, then maybe 1–2\% of your shares would be enough to motivate a contractor. If you’re not profitable and you need the help, 5–10\% might be a better choice. Personally, I start companies with three cofounders, each taking on 1.5 million shares each.

What if I am misclassified as an independent contractor?

California law also permits employees to recover civil penalties (like a fine) from employers who misclassify employees as independent contractors. California Labor Code Section 226.8 provides for civil penalties ranging from $5,000 to $15,000 per violation.

What is the difference between an employee and an independent contractor?

Key takeaway: Independent contractors are not employed by the company they contract with; they are independent as long as they provide the service or product agreed to. Employees are longer-term, on the company’s payroll, and generally not hired for one specific project.

What is the difference between employee and contract labor?

An employee is on a company’s payroll and receives wages and benefits in exchange for following the organization’s guidelines and remaining loyal. A contractor is an independent worker who has autonomy and flexibility but does not receive benefits such as health insurance and paid time off.

Can you give options to contractors?

What is an unapproved share option scheme? Unapproved options are flexible and can be given to employees, contractors, advisors, consultants and international employees.