If you think your first 3 hires deserve less than 1% then you probably shouldn't be hiring them. Alternatively, you gave too much equity to your investors. That's how I see it.
If you join BEFORE seed money, and do a bunch of work for free, you can be a cofounder.
If you join AFTER seed money, and get something like a market salary, you are an engineer.
The gray area is the in-between places. If you join before seed money, but only work 1 hour a week (say to help out a buddy), are you a cofounder? I would likely vote no.
Or if you join AFTER seed money, but work for 75% of market rate. Or 50%. At what pay do you appear to be a cofounder vs engineer?
So you're saying it is a definition issue. Regardless of what work you do at a startup, you are considered a "co-founder" if you put in initial sweat equity (ie. did work for free) but an "engineer" if you only joined after the company was funded and paying wages at market rates?
As for the grey area, it seems as if common-sense should prevail but sadly that doesn't always happen so you always need a contract laying out exactly what each side gets, even for volunteer work. I seem to recall a story earlier this year (can't remember the company involved) where one of the founders' friends had helped out occasionally before they got funded, then the company got funded, ended up with a fairly large valuation, and the 'friend' reappeared and claimed that they were owed a significant share of the company.