Running a SaaS business while employed?

IANAL.

You are lucky in one area because you created the SaaS product prior to coming on board.

You are (may be) unlucky in another area because it sounds like you took the job without coming clean about the SaaS product.

The situation is complicated further if your employer is hiring you as a developer, and even further complicated if the SaaS product targets (or could conceivably target) the same industry/set of customers as your employer.

Your biggest challenge is conflict of interest. If you can show that there is no COI between you working on your SaaS product and your day job, there should be little grounds (or interest) on the part of your employer to come after you. You should probably be worried not just about code updates to the web application, but to the revenue stream that your SaaS product is generating.

At this point (assuming you are employed), you have three options:

1) Talk to somebody in the company (Legal/CEO, depending on size of company). Have the awkward conversation and come to an agreement.

2) Stop working on your SaaS product, but don't tell your employer.

3) Continue working on the SaaS product without informing your employer (i.e. gamble that you can fly under the radar).

If you're not employed yet and just entertaining a job offer, do #1.

If you're employed, I suggest doing #1 if you feel that you want to keep working on your pride and joy. If they become real pricks about it, perhaps you could negotiate ownership stake in your SaaS company and outsource or have your co-founder continue coding.

It seems unlikely you'll seriously consider #2 if the SaaS product is making some money. If you go down this route, keep records 'just-in-case' showing that you ceased all development at X date (which would hopefully coincide with your date of employment).

If you go #3, be prepared to lawyer up if your employer catches on (e.g. SaaS product starts garnishing serious attention).

I'm not a lawyer, but if somebody on my team came to me with this problem, those would be the options I'd lay out for them.

Depends entirely on your employment agreement with your employer. Some employers claim everything you create, others only claim the work you did for them as part of your employment. (Also, some jurisdictions prohibit such broad claims in employment agreements, but most don't.)

Best-case scenario: find a prospective employer that actively wants to support your work on your service because it helps them, and work with them to create an employment arrangement that works for you.

Failing that, you should talk with your prospective employer, explain the situation, make it clear that you'll never work on it during business hours or on business resources (unless they explicitly want you to), and get it explicitly excluded from your employment contract.