Starting your company usually feels like stepping into the unknown. You’re about to face a wealth of unpredictability as you try to navigate toward success.
In some ways, though, things will never be simpler. That’s because once you hire your first employee, everything changes.
Their salary adds a significant chunk to your overhead, of course. But that’s only the start of the changes here. You’re now beholden to local, state, and federal employment law. Once you start running payroll, a complicated array of taxes comes into play. On top of this, you need to think through the compensation you’ll offer beyond salary, from benefits to stock options. And you need to time that offering well to attract and retain the best talent while protecting your bottom line.
It’s no wonder many founders and investors consider the hiring of the first employee a major milestone. Taking the time now to build scalable systems and ensure early-stage compliance goes a long way.
Your first “employee”: Paying yourself and any co-founders
You’ll technically be at the zero-employee mark when it’s just you and any co-founders. Still, the issue of pay already comes into play.
In your earliest days, making decisions here is usually fairly easy. Your company doesn’t have much money, so you don’t pay yourself much — if anything at all.
Your compensation should scale up as your company grows, usually along lines like these:
- Pre-seed: As the company starts to get funding, we see most founders take a Ramen noodle salary — enough to cover basic living expenses. Between $60k and $80k a year is a pretty common range here.
- Seed stage: Once the company raises its seed round, we usually see founders increase their annual salary to somewhere around $100,000–$150,000. And we have a tip for you here. If there are multiple founders, paying yourselves the same amount during your seed stage helps to keep things simple. This way, the founder relationship dynamics stay balanced.
- Series A: With this round of funding in the bank, many founders increase their pay to somewhere between $180,000–$250,000. We estimate the average here to be $200,000.
- Series B: You might not change your salary much, but at this fundraising stage, founders often have an opportunity to earn more through secondary transactions. If an investor is looking to purchase equity in your company, you might sell some of your personal shares (e.g., 100,000 of your 1 million shares) directly to them. We usually see founders tap secondary transactions for payouts around $1–$3 million. A $1.5 million sale of shares is fairly common because it lets the founder pay the taxes and still have a million in the bank.
All of this is a broad overview of loose averages. Founder salaries depend on both the company type and the location.
A lot of our SaaS and AI clients are trying to be very capital-efficient right now. In biotech or pharmaceutical companies, salaries might be higher to offset risk while the company goes through early clinical trials.
Plus, geographic differences come into play. In cities like New York, San Francisco, and Boston, founders often need salaries about 30–40% higher just to cover living expenses.
Working closely with your certified public accountant (CPA) can help you figure out the right number to take home for yourself, and how to adjust it as you go through fundraising stages.
Support as you scale
As your company grows, some things get easier and some get harder. One thing never changes once you bring on your first employee, though: the human capital in your business means you need to take certain steps. From payroll filings to legal compliance measures, there’s a lot your business needs to do to stay square here.
Ideally, this guide helped you dip your toe into all of it. You still might feel like there are a lot of moving parts here, though — because there are. Bringing the right people and solutions alongside you makes a big difference.
Here at ShayCPA, our team specifically focuses on working with tech startups. That means we have extensive experience with all of the different requirements that come with scaling up your headcount. We can step in to offer guidance and make recommendations to help you stay compliant while setting your company up for success.
As part of that guidance, we again want to highlight our payroll and PEO partners. We’ve chosen to work with these companies because we’ve seen the serious value-add they bring to founders. If you’re looking for help to pay and manage your team — whether that’s your first employee or a whole new wave of hires — we recommend exploring:
If you have any questions, we’re absolutely available to answer them. Because we work with founders from pre-seed to Series A to exit, we should be able to help you get the information you need. Contact our team to book some time with one of our experienced CPAs today.
Disclaimer:
The content provided on this blog is for general informational purposes only and does not constitute professional accounting, tax, or legal advice. Reading or accessing this material does not create a CPA-client relationship, nor should it be construed as a substitute for individualized guidance from a qualified professional. While we strive for accuracy, Shay CPA PC makes no warranties—express or implied—about the completeness, reliability, or timeliness of the information, and we expressly disclaim liability for any errors or omissions. You should not act or refrain from acting based on any blog content without seeking the advice of a qualified CPA or other professional who can address your specific circumstances. Links to external resources are provided for convenience only and do not imply endorsement. Shay CPA PC is under no obligation to update this content and disclaims responsibility for decisions made in reliance on it.