Be Careful About Deferring Pay in a Startup Company

In an article in CFO Magazine on potential compensation perils for startup companies, Christine Osvald-Mruz warns that many startup companies defer some or even all cash compensation for employees until they have the money to pay. If that payout date is uncertain—as in whenever the company has the funds—Osvald-Mruz notes that it would be subject to additional deferred compensation taxation under Section 409A of the tax code. That can be avoided by specifying a specific date or event in the future, such as after some vesting period or at a date far enough into the future that it seems certain the company will have the cash.