All employers should implement some form of employment agreement. The agreement should be well written and clearly spell out the provisions for employment. Agreements will protect you and your company by clarifying any misunderstandings and creating clear expectations for yourself and your employees.

An Employment Agreement Should Include the Following:

• A description of the job the person was employed to perform
• The rate of compensation they can expect for services performed in compliance with the job description
• Truth or consequences - a new employee needs to inform you of any covenants to which he/she is obligated by companies similar to your own
• Confidentiality - a new employee should be aware of customer and business record confidentiality policies
• Under no conditions are company records to be duplicated or removed from the premises
• Reimbursement guidelines for expenditures
• All profitable creations or improvements whether intellectual or tangible discovered or manufactured by the employee while under the employment of the corporation are the sole property of the corporation
• Employees shall not receive compensation beyond normal salary for the use of their likeness or name by the Corporation
• The employee shall not enter into competition with the company while employed or for a 2 year period following termination of employment by the employee or the corporation
• The corporation can and will pursue retribution for damages in a court of law brought about by the infarction of any portion of the employment agreement.

Independent Contractor Agreements

Sometimes a business will hire an independent contactor (IC) instead of an employee. This allows the company to avoid many of the requirements associated with employment. These may include the employers' share of SS and Medicare tax, withholdings, and workers comp. An IC also alleviates the need to provide employee benefits such as insurance, pensions and paid vacations.

Some workers prefer IC status because the rate of pay is higher and they have no interest in benefits. Others find it difficult to obtain true employment. ICs are often referred to as self-employed individuals.

Other workers prefer IC status for the tax benefits involved. As self-employed individuals they are allowed to claim all work related expenses without using the 2% deduction formula true employees must use when filing the same expenses as itemized deductions. However, many are unaware of the self-employment tax which often undermines any gains. In addition, Keogh Plans are sometimes more lucrative to ICs than employees.

Corporations will need to comply with IRS regulations when utilizing the benefits of IC services. These regulations clarify if the IC is really an employee and eligible for certain benefits. There are 3 large divisions into which 11 stipulations are used in the analysis of a worker's status as employee or IC.

1. Control of Behavior
   • Is the worker instructed in specific duties or given a job to complete in whatever manner he/she deems appropriate to the situation?

   • What type of training, if any, is provided to the worker by the Corporation?
   
   
2. Control of Finances
   • To what degree is a worker incurring un-reimbursed business expenses?
   • How much has a worker invested?
   • How available are the workers services to the public?
   • What methods of computation and compensation are used by the Corporation?
   • How probable is it for a worker to take in a profit or sustain a loss?
   
   
3. Relationship Type
   • Does a written, tangible contract exist between the company and the worker describing the relationship?
   • Are benefits similar to employee benefits provided by the company to the worker?
   • Are there any timeframes structured into the relationship?
   • How crucial to the business are the services rendered by the worker?

The pertinence of a written and concise IC agreement cannot be overestimated.

An IC Agreement Should Contain the Following:

• Clearly describe the services requested of the IC
• Include a timeline
• Detail the establishment of the IC's relationship to the corporation
• Confidentiality agreement
• ICs should be responsible for their own expenditures.
• Sufficient IC supplied insurance to indemnify the corporation
• Corporate protection against libelous acts
• Protection against IC competition with the corporation

For more information on forming a corporation or LLC for your business or for complete details on other helpful business and personal legal services, please do not hesitate to email us at info@adanaslaw.com, call us toll-free at 877-420-4600, or contact us online. Be sure to request your FREE Informative Newsletter and Business Start Up Check List!