I'd be fine with it. I think later on when you've got dozens (or hundreds) of employees and a limited options pool, it might become unfeasible. But right now, I'd have no problem with paying an employee only equity. Even tiny companies like us have valuations that are, well, non-zero, so it's not like some employee can conspire to get founder equity status by simply not taking cash.
Why, know someone who will take only equity? Send him/her our way if so..;)
According to the IRS (I am a tax attorney/accountant) any officer of a corporation is a "statutory" employee. Anything of value that the corporation gives to that person is construed as wages -- subject to SS tax, medicare tax, federal unemployment, and all the rest of the employee/employer law. (which varies by jurisdiction, but is almost always expensive and onerous). In fact, anything of value that goes to a person related to that officer is wages to the officer. Stock, par or no par, usually has some value. Those are wages.
Just as note to add dark humor to the subject -- note that in the law the employer/employee relationship is called "Master-Servant."
hm. I'm also not a lawyer or a tax professional, so I may have it completely wrong, and I should probably shut up. But my understanding was that if you owned equity in a company and you worked for that company, if the IRS looked at it, in nearly all cases you'd be ruled an employee.
Don't know anyone at the moment, but I've always thought this could be an interesting alternative for a potential founder who has some savings (especially someone roadblocked by a partner search). I haven't heard of many people doing it though, and was curious what the reactions would be.
Why, know someone who will take only equity? Send him/her our way if so..;)