Markets

What This Groupon Pay Stub Says About Wage Slavery in Tech Media

By Jim Edwards

Updated on: September 13, 2011 / 12:07 PM EDT / MoneyWatch

Former Groupon (GRPN) salesperson Ranita Dailey of Illinois did her 7,000 colleagues at the daily deal site a solid when she included in her overtime pay class action lawsuit one of her typical paystubs.

While an Illinois federal court will decide whether her sales commissions should have been included in a calculation of her overtime pay -- she alleges they weren't but should've been -- the pay stub describes the financial reality of working at a hot tech startup that's about to raise $750 million in cash through a closely watched IPO: Those who are actually doing the work, the pay stub suggests, aren't getting rich.

Likewise, AOL wants its 13-year old bloggers to work for free on its Huffington Post and Patch properties. And models at porn and adult-dating empire FriendFinder Networks (FFN) get paid only on commission.

Dailey's pay stub suggests she probably grossed about $60,000 a year at her job, but took home only about $42,000 of that in cash after taxes and deductions. Compare that to the $947 million recently pocketed by management and insider investors in Groupon's last round of financing.

Sure, CEO Andrew Mason has probably worked his socks off launching Groupon, and venture funders have every right to get their money back plus a premium for taking the risk. But look how disproportional the rewards were: While Dailey et al. got modest salaries for working 53-hour work weeks, Mason and his funders took home tens or hundreds of millions of dollars.

Here's how Dailey's pay packet breaks down for the week ending 8/8/2011 (bi-monthly pay cycle):

Pay rate: $15.62 per hour
Hours worked: 86.7 hours:
Total basic pay: $1,354.17
Overtime worked: 19.75 hours
Total overtime pay at time and a half: $462.86
Total hours worked: 106.42
Commissions earned: $478.78
Gross wages: $2,295.81
401(k) deduction: $114.79 (5 percent)
Various health insurance: $54.22 (3 percent)
State and federal taxes: $516.52 (or 22.5 percent)
Take-home pay: $1,610.29

At first, Dailey's pay seems generous. She grossed nearly $4,600 a month. Her health insurance, at just 3 percent of her wage packet, seems cheap. (She should probably have saved more than 5 percent in her pre-tax 401(k), but that's another story.) The cumulative effect of all those little tax, retirement and healthcare deductions, however, takes a 30 percent bite out of her paycheck. She only took home about $800 a week in cash, after working 53 hours.

That's not bad -- for a member of the blue-collar working class. It's not the kind of high-paying tech job that the business media focuses so much of its coverage on, however.

Now look at it from CEO Mason's point of view. His business is hopelessly unprofitable. In a recent memo to employees, Mason promised to cut marketing costs by 20 percent. That would not have affected Dailey, as she was in the sales department, which is a separate budget line in Groupon's financials. But overall, Mason must cut 26 percent or more of all his operating costs, including sales, if Groupon is ever to stand on its own two feet.

What this means is that either 26 percent of the sales staff must be laid off, or their compensation cut by 26 percent, or they must work harder, and longer, and grow revenues while their total pay stagnates.

This, then, is the lesson of the Groupon paycheck: The country's hottest tech startup creates modest jobs at best for a large portion of its staff -- Reuters says Groupon's sales force is 1,000 strong -- and then immediately puts downward pressure on their wages.

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