Your business is growing! You’ve decided it’s time to hire some help. Here are some important considerations.
Determine whether you are hiring an employee or an independent contractor
Texas courts frequently start with the presumption that the work relationship is one of employer and employee unless there is a valid contract designating the worker’s status as an independent contractor.
While there are specific legal tests to distinguish between employees and contractors, the issue is whether you control the manner and means of their work. If you do, then they are employees.
If the IRS determines that an employee was incorrectly characterized as an independent contractor, the business will be required to pay back wages, overtime, FICA, unemployment contributions, worker compensation, medical insurance, vacation pay, and other amounts that should have been withheld on the employee’s behalf.
Determine the employee’s status
- An employee is exempt if the employee is paid a salary and performs a category of work classified as exempt under state and federal law.
- Non-exempt (hourly) staff are entitled to rest and meal breaks as well as overtime pay.
Use Written Employment Agreements
There are several common provisions you should include in your employment contracts.
- Job Description. Describe the job duties and, if applicable, set certain benchmarks of expected performance, such as productivity requirements or minimum sales quotas.
- Compensation and Benefits. Describe the employee’s pay and benefits. Explain whether vacation and/or sick leave are accrued and describe other job benefits the employee is entitled to participate in, such as health insurance, life insurance, retirements plans, stock options, etc.
- Restrictive Covenants. Describe any non-compete restrictions and restrictions against soliciting customers and/or employees of the company the employee is subject to while her or she is working for your Company and for a certain time period after termination. Require new employees to sign off that they are not breaching any restrictive agreements they have made with prior employers.
- Protect Confidential Information and Trade Secrets. Prohibit employees from disclosing or profiting from any proprietary information, trade secrets or confidential information of the Company. Trade secret laws are predicated on the assumption that you and your company take appropriate steps to keep proprietary information confidential. In order to be able to recover damages from an employee or contractor, you must be able to demonstrate that you took appropriate steps to properly safeguard your confidential information.
- Claim Intellectual Property. Include provisions in your employment agreements that any intellectual property or trade secrets developed by an employee is owned by your Company.
Understand and comply with applicable state and federal regulations governing your company’s obligations to its employees.
Your business is required to pay employment taxes and withdraw and forward taxes from the employee’s paycheck to the correct taxing entities, including federal and state taxes, Social Security and Medicare contributions and unemployment taxes.
An employee handbook is a helpful tool to explain your workplace policies. In many cases, these may be provided by your payroll processing company. At a minimum be sure to cover the following:
- Anti-harassment (include a reporting mechanism and complaint process)
- Equal employment opportunity and non-discrimination
- Meal period and rest breaks for non-exempt employees
- Computer, PDA, and Social Media usage (a good policy should state that employees have no expectation of privacy and designate who is allowed to make official statements for your company)
If an employee is acting within the scope of his or her employment carrying out company business, the company will normally be held responsible for the employee’s actions.
Be prepared to terminate the relationship if the employee does not work out. In Texas, employees are hired “at will”, meaning either the employee or the employer can terminate the working relationship at any time for any reason or no for reason whatsoever. However, take steps to protect your Company from an unemployment claim. You will need to be able to prove that the discharge resulted from a specific act of misconduct by the employee and that the claimant knew or should have known he could lose his job for such behavior. Be sure the employee has received the warnings outlined in your policy manual. Give the employee a chance to explain his side of the story.
Hiring help for your business can be tricky. Business owners should consult with their legal and tax advisers for interpretation of specific requirements concerning hiring employees and consultants. For more information, please contact Kathy Tremmel at Tremmel Law, PLLC at (512) 539-0317 or firstname.lastname@example.org.