Kalia Law P.C. understands the needs of growing small businesses and startups. We can help with employment matters, seeking investments, and ensuring your interests are protected. We are here for all of your business growth legal needs!
Employee & Employment Matters
We Help Demystify
Employees vs. Independent Contractors
Hiring and Firing Employees
Employee Benefits & Compensation
Employment Tax Issues
Essential Employment Documents
Employees vs. Independent Contractors
Is It Better to Hire or Contract?
Whenever you hire someone to work for you, you must decide whether you should classify them as an “employee” or as an “independent contractor.” This decision affects many different aspects of your business and their employment, so this decision should always be discussed with an experienced small business attorney. Whether it is better for you to seek out an employee or an independent contractor will depend on many factors, including the type of business you run and the nature of the work you need the hired individual to complete. In many situations, it is not your choice as the law sets out strict guidelines on how to classify workers. However, it is imperative that you correctly classify each individual you hire because failing to do so can result in significant legal and financial liability down the road. At Kalia Law, P.C., we can carefully evaluate your situation and help you determine the right classification for your needs.
What Do You Get From an Employee vs. an Independent Contractor?
A business owner’s relationship is often quite different with an employee than with an independent contractor and both have their pros and cons. The following are only a few examples of what you will experience with each type of worker:
- You can give them a set schedule and hours during which to work.
- Their employment is continual until you terminate them.
- You will have to pay for workers’ compensation insurance and payroll taxes.
- You will have to comply with all applicable state and federal labor laws and anti-discrimination and harassment laws.
- They generally set their own schedule and hours.
- They often work and are paid on a per-job basis.
- They cover their own taxes and insurance costs.
- They have no protections under state and federal labor and anti-discrimination laws.
What Makes an Employee vs. An Independent Contractor?
Simply labeling someone an independent contractor does not automatically mean they should be classified as such under the law. You should consider many factors when determining classification, including the following:
- Behavioral control – One of the main factors to examine is whether you largely control the work or whether the worker has significant control over their own work. An independent contractor generally sets their own hours, controls how they perform the work, the materials they use, the clothes they wear, and more. On the other hand, you can usually dictate the schedule, clothing, and other work-related details for an employee.
- Relationship – Do you provide benefits, training, and supervision for the worker? If so, they are likely an employee. In most cases, an independent contractor is responsible for building their own skills and expertise and supervising their own work.
- Financial control – You need to examine who sets the rate of pay, provides the tools and materials used for the job, and covers business expenses. Usually, you will have control over all of these in regard to an employee while an independent contractor can decide how much to charge and will be responsible for providing their own tools and materials.
These are not the only factors to consider when classifying employees and it is always wise to consult with a business attorney if the classification is not clear.
Hiring & Firing Employees
If you have employees, you will inevitably face the process of both hiring and firing them. Employees, however, have many protections under the law in these situations and you must ensure that you fully comply with the law to avoid legal liability and penalties. For example, when interviewing and hiring someone, you may never engage in any type of discrimination based on protected factors such as race, gender, religion, disability, sexual orientation, and more. You must also observe that applicants have certain rights to privacy and you should not inquire about marital status, pregnancy, or other personal matters. You should always have a carefully written employee handbook outlining all of your policies and benefits so there is no confusion about what you can and cannot provide for the employees.
Generally, no one enjoys the task of firing an employee. However, it can become significantly more complicated if the employee accuses you of violating employment laws in the process. First, ensure that the termination could not be confused for unlawful retaliation. Make sure you follow any termination policies that you have set out in employment handbooks or contracts. Additionally, document all your reasons for firing the employee so that you can prove your reasons were not pretextual. You should also consider whether or not you want to offer a severance package. An attorney can assist you in navigating the entire hiring and firing process.
Employee Benefits & Compensation
There are many different options for offering employees benefits and compensation. Many small business owners have the option to offer basic benefits such as health insurance, or put together complex benefits packages including incentive plans, retirement plans, stock ownership, and more. At Kalia Law, P.C., we can help you determine what type of benefits are best for you to offer your employees. In addition to benefits, you also need to determine how you are going to compensate your employees for their work. You can pay them an hourly rate, offer them a salary, give bonuses, and other forms of compensation. It is important to make sure the method and type of compensation works for both you and your employees.
Employment Tax Issues
If you have even one employee, you must meet all of the tax requirements set out by the Internal Revenue Service (IRS) and by the California state government. If you do not follow employee tax guidelines, you may find your business in jeopardy or may even face personal liability from the IRS. Some of these requirements include:
Obtaining an EIN
Once you hire even one employee, you need to obtain an Employer Identification Number (EIN) from the IRS.
Federal & State Income Tax
Employers are expected to withhold a certain amount of federal income tax from each paycheck for each employee. To determine how much to withhold, every employee should complete a Form W-4 and you should use this and the employer’s tax guide published by the IRS and in California. You must also follow guidelines for reporting and depositing the withheld wages.
Social Security & Medicare Tax
In many situations, you also must withhold Social Security and Medicare tax from paychecks, as well as contribute a matching amount from the business.
You must contribute a certain amount in unemployment insurance (UI) tax for each employee, though employees do not contribute to this fund themselves.
Preparing Essential Employee Documents
Job Offer Letters
When you decide to hire a job applicant, California law does not require that you prepare and send a job offer letter. However, in many situations, it is a good idea to send a letter to start the employment relationship on the right foot and ensure the employee understands the nature of the position and the offer. Job offer letters do present the opportunity to make legal mistakes, so you should always have the assistance of an experienced lawyer who understands the legal implications of this type of letter. Some information that may go into a job offer letter includes salary and method of payment, benefits offered, start date and duration of employment if applicable, and more. Make sure you do not offer more benefits than you are able or willing to provide to entice an applicant—a job offer letter is legally binding so an employee can hold you accountable for providing what you promised.
Separation Agreements & Release of Claims
A separation agreement—also referred to as a severance agreement—sets out the terms of the employee’s separation from your company and the employment relationship. Often, such an agreement will include an offer of a severance package in exchange for a release of claims. A release of claims essentially involves the employee agreeing not to bring legal action against the company for wrongful termination, discrimination, or similar claims. In order to secure an employee’s signature on a release of claims, you will generally have to offer a favorable severance package including an extension of benefits, additional compensation, and more. A separation agreement and release of claims are not necessary for every employer in every situation. Instead, you should consider offering this type of agreement if you believe there may be a chance an employee can allege some type of employment law violation. Even wrongful allegations can result in costly litigation, so discuss the possibility of a separation agreement and release of claims with an attorney prior to terminating an employee.
Independent Contractor Agreements
Hiring an independent contractor can save you money, time, and worry. However, if you the working relationship is not clear, the IRS can come after you for unpaid taxes and the worker could file a claim for violation for labor laws. One of the ways you can justify and clarify the independent contractor relationship is to sign an agreement with the contractor that clearly sets out the terms of the working relationship. This agreement can address when the work will be completed, the type of service to be performed, and the payment arrangement, as well as protecting you from future liability.
Though many owners of small businesses may not think creating an employee handbook is necessary, it a good idea to take the time to set your policies out in writing even if you only have a few employees. First, creating a handbook can help you officially formulate your employee policies so that they are applied consistently and fairly. Furthermore, it will ensure that all of your employees understand your expectations and policies so they do not try to take advantage of a friendly, small business atmosphere. A handbook also provides important legal protections by demonstrating that you had implemented a fair policy in case an employee brings a legal claim against you alleging otherwise.
What Should you Include in Your Employment Handbook?
Employee handbooks can be relatively simple though they should also be carefully crafted to accurately reflect your policies. The following are examples of basic topics that a handbook should include:
- Description of your business operations
- Expectations for schedules and hours to be worked and leave policies
- Your policies and procedures for compensation
- Benefits provided to employees
- Policies on anti-harassment and discrimination
- Policies on attendance and tardiness
- Policies on workplace conduct, including alcohol or drug use
- Policies on electronic communications and online activity
- Procedures for employee discipline
- Procedures for employees to file complaints
- Disclaimer that situations may arise that are not addressed in the handbook
Handbooks for Different Business Types
Depending on your type of business operations, you may need to include additional, mire specific provisions in your employee handbook. For example, if the workplace environment is potentially dangerous due to machinery or tools, you should clearly state your policies on workplace safety and procedures for reporting accidents. If your employees will handle sensitive or secret information, you will want to have employees sign a non-disclosure agreement as part of the handbook. These are only a few examples of more specialized handbook provisions and a small business lawyer can identify any potential issues that apply to your particular business model.
Compliance Issues in the Workplace
Employers must comply with a significant number of laws regarding employees and the workplace on both the federal and state level. For instance, you must ensure that your workplace meets all health and safety standards. You must carry workers’ compensation and unemployment insurance in case an employee gets injured or laid off. All employees must receive at least a minimum wage and overtime rates, must be provided the proper meal and rest breaks, must be provided necessary accommodations when appropriate, and more. As you can see, there are many laws with which you must comply when you have employees and an experienced small business attorney can review your situation and ensure you are not missing any important compliance issues.
Getting Investors & Raising Funds
We Help You
Determine The Best Strategy for Raising Funds
Raise Cash Through Financing
Raise Cash by Selling Stock
Overview of Business Fundraising Strategies
One of the most important aspects of growing your business is securing the financial means to do so. There are several different investment strategies that a small business owner can pursue and it is important to carefully examine the investment strategy you choose from both a financial and legal standpoint.
You should always carefully examine the benefits and drawbacks with an attorney before selecting an investment strategy.
Many small business owners choose to cover their start-up or operating costs by obtaining cash financing from a business lender. If you opt for cash financing, you can maintain full control over your business and can deduct your interest payments as a business expense on your taxes. However, by obtaining a loan, you are agreeing to repay the loan and, if your business is unable to do so, your operations or even personal assets may be in jeopardy.
Businesses may also sell an equity stake in the business to investors, who will then have a say in how the business is operated. While the biggest drawback in selling equity is losing a certain amount of control in your business, some investors can improve operations by providing valuable advice and established business connections.
Financial Documents Overview
No matter what type of investment strategy you choose for your business, you will need to have certain financial documents signed and on file. Some examples of financial documents involved in funding your business costs include promissory notes, convertible promissory notes, stock purchase agreements, and more.
Promissory Notes and Convertible Promissory Notes
When you borrow money for your business from a bank, another type of commercial lender, or even a family member or friend, you should sign a document called a promissory note. This note should set out the amount of the loan, the terms of repayment, the interest rate, and other important provisions. You can have many options for repayment, including amortized payments, interest-only payments with a last balloon payment, single payment after a period of time, and more. You should closely examine which type of payment is right for your business and earning potential of your business. A convertible promissory note is a different type of debt instrument that is purchased by investors. It serves a similar purpose as a promissory note, however, at a future date the debt converts into equity in the company.
Stock Purchase Agreements
A stock purchase agreement is the document signed when you sell shares of your company to investors. Some of the important information contained in a stock purchase agreement includes the terms of the sale/purchase and representations and warranties regarding your company. You must be extremely sure that there is no information in the representations and warranties that can be construed as untrue or inaccurate. Being accused of misrepresentation in a stock purchase agreement can result in serious legal liability, so you always want to have a qualified attorney carefully review these documents.
Agreements & Contracts
We Help You
Understand Your Unique Needs
Determine What Documents You Need
Prepare Custom Agreements & Contracts
Understanding & Determining Your Needs
Why do you Need Agreements & Contracts When Growing your Business?
In order for a small business to grow, you will almost certainly have to collaborate with other businesses and, of course, with customers to operate and make a profit. In order to protect your business, it is important to have legal written agreements setting out the expectations and duties of the respective parties. Such contracts are legally binding and provide recourse for your business should the other party not live up to their end of the bargain. If you do not have carefully negotiated and drafted contracts, you could be opening your business up to costly financial and legal liability. For this reason, you should not sign any contracts without having an experienced business contracts attorney review them first.
Types of Businesses that Often Require Customized Agreements
Many types of businesses require customized clauses to better protect you and also to be compliant with laws that may affect your business.
This is far from an exhaustive list of businesses that should have specially-tailored contracts, and we always recommend consulting with a business attorney who can negotiate, draft, and review all provisions of your agreement to protect the interests of your business and help you achieve your goals.
Examples of common small businesses that should seek assistance in customizing contracts include:
Consultants and Professional Service Providers
Real Estate Agents and Brokers
Contractors & Construction
Prepare Customized Agreements & Contracts
Customized Agreements for your Unique Business Needs
While there are always standard business contracts available online, these contracts have boilerplate language that will not address and particular details of your unique business needs under the agreement or contract. In fact, it is very risky to use a contract that has not had every clause specifically tailored to the transaction at hand. By doing so, you may not be fully protecting your business’s right to payment, services, deliveries, and more, and may not be adequately protecting your business for liability to the other party.
Common Types of Business Agreements & Contracts
There are many different types of contracts used by businesses and the kinds of agreements you will need will depend upon your particular situation and operations. Some of the most common types of agreements and contracts used by small businesses include as follows:
Consultants are generally independent contractors and, when you hire one, you should always have a written contract setting out the terms of the relationship. Some of the provisions in a consultant agreement commonly include a statement of the nature of work and services to be provided by the consultant, ownership of any work product, confidentiality clause, liability limitations, compensation terms, and more.
A service agreement is a contract between your business and another party either promising that you will provide a certain service or that the party will provide a certain service for you. A service agreement can be for a one-time service for a one-time fee or for ongoing services at certain intervals for an extended period of time. Service agreements commonly include clauses addressing the type of service provided, the time frame for the service, the terms of the relationship, the terms of compensation, and more.
When an individual comes to your business and requests a service, it is sometimes appropriate to sign a client agreement. A client agreement describes the exact services to be performed so the client knows exactly what to expect and protects your business from later legal claims that you did not perform the services as promised. An agreement will also set out the terms of compensation for your services, giving you the legal right to pursue such compensation if the client fails to pay. These agreements also often contain clauses that limit your business’s legal liability if something does not go as planned.
Other Contracts & Agreements
Sometimes businesses also need the following agreements and contracts to further grow their business:
- Commercial lease agreements
- Commercial real estate purchase or sales agreements
- Bills of sale
- Employment contracts
- Non-disclosure agreements
At Kalia Law P.C., we can help you draft these kinds of agreements and much more!