For company founders, hiring employees is a major step that involves a host of business, financial, and legal considerations.
- Hire the right employee, and your company could reach new heights.
- Hire someone who lacks respect for your company’s core values, and you may find yourself performing damage control with your customers and the public on social media.
- Do things by the book, and you can feel confident that your decision to hire has not created unnecessary legal exposure.
- Ignore the legal aspects of employment, and you may soon find yourself facing a civil action or regulatory enforcement.
From a legal perspective, hiring employees presents a variety of potential issues. However, most of these issues can – and should – be addressed proactively, and hiring does not have to involve digging into the quagmire of state and federal employment laws. Your attorney should be able to tell you what you need to know, and he or she should be able to provide you with the legal documentation necessary to protect your company’s interests and help you comply with the law. In a typical scenario, the following are the basic legal considerations involved in taking on employees.
1. At-Will Employment vs. Contract-Based Employment
In the United States, most employees serve under what is known as “at-will” employment. This means that the employee does not have a contract with a specified duration, but rather is subject to termination at any time as dictated by the business’s needs.
However, while at-will employment offers certain benefits to employers (and employees), there are certain circumstances in which executing an employment agreement may be beneficial for both parties. You can learn more about using employment agreements in our previous article, 12 Points You Must Cover as a Founder to Make Your Employment Agreement Rock Solid.
2. Limits on Termination of At-Will Employees
Despite the general rule that employers can terminate their at-will employees at any time, there are limits on the reasons why an at-will employee may be terminated. These limits largely arise out of state and federal anti-discrimination laws, which prohibit any employment-related decisions based upon an employee’s membership in a “protected class.”
3. Discrimination in the Workplace
State and federal anti-discrimination laws establish certain “protected classes” of employees who are protected against adverse employment action based upon their personal traits or characteristics. Discrimination is a serious issue, and all employers should have policies and procedures in place to ensure that their employees are not subjected to discriminatory treatment. Laws such as Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act (ADA), the Age Discrimination in Employment Act (ADEA), and others prohibit discrimination on the basis of an employee’s:
- Age over 40
- Physical or mental disability
- Race, color, ethnicity, or national origin
- Sex or gender
- Sexual orientation
4. Sexual Harassment as a Form of Discrimination
Sexual harassment is considered a form of sexual discrimination under Title VII. Sexual harassment can take many different forms, and there are certain legal standards for what constitutes discriminatory harassment. If an employee feels harassed or uncomfortable at work, this should almost always be treated as a very serious issue. Employers should make sure that their employees have clearly-established and non-intimidating means to report instances of sexual harassment, and they should conduct training programs to help owners and employees at all levels understand what is and isn’t okay.
5. Employment Agreements vs. Confidentiality Agreements
Even if you choose to hire employees on an at-will basis, you may still want to have your employees sign confidentiality agreements (or non-disclosure agreements). When an employee is subject to an appropriately-drafted confidentiality agreement, he or she will be prohibited from disclosing sensitive information about your company’s operations, market strategies, customers, products or services in the pipeline, and other proprietary data. Confidentiality agreements can apply during the term of employment and for a period of years after resignation or termination, and they should be drafted to specifically address the company’s particular needs in compliance with applicable state law.
6. Ownership of Intellectual Property
As a general rule, any intellectual property (IP) assets that an employee develops within the scope of employment will be owned by the employer. This is in contrast with the general rule for independent contractors, which are presumed to own any IP they create unless they sign a work-for-hire or IP assignment agreement.
However, in many cases, there are still steps that employers will want to take to ensure that their employees cannot claim ownership of company IP. This is particularly true in cases where employees work from home using their own laptops and equipment or where they may work on side projects that closely align with their employment-related duties.
7. State and Federal Tax Withholdings and Taxes on Employers
While companies that hire independent contractors can pay their contractors’ invoices in full and prepare a Form 1099 at the end of the year, employers must generally withhold state and federal taxes from each individual paycheck. This includes state and federal income taxes, Social Security taxes, and Medicare taxes. Employers must also pay the federal unemployment tax; and, depending upon the jurisdiction(s) in which they operate, they may need to pay other employment-related taxes as well.
8. Workers’ Compensation Insurance
Workers’ compensation laws vary from state to state, with different states mandating workers’ compensation insurance (or self-insurance) for companies with different minimum numbers of employees. Workers’ compensation provides “no-fault” benefits for employees’ job-related injuries, which means that employers (or their insurance companies) must pay regardless of who was at fault in the accident or incident resulting in the injury.
9. Lunch Breaks, Benefits, Vacation Pay, and Paid Time Off (PTO)
Requirements regarding lunch breaks, benefits, vacation pay, and paid time off also vary from state to state. However, if you provide certain benefits – such as an employer-sponsored retirement plan – you may need to comply with various federal laws as well. Can you let your employees skip lunch so that they can go home early? Maybe, but maybe not. Are you required to offer health insurance and PTO? Due to varying requirements, these are questions you will need to answer with the help of an experienced employment law attorney.
10. Overtime Pay and Flex Time
While independent contractors can work in excess of 40 hours per week at a stipulated rate, state employment laws typically limit employees’ hours, and many states require additional compensation in the form of overtime pay. If you want to offer the option to work four 10-hour days instead of five 8-hour days, you will need to make sure that this type of flex-time arrangement does not expose your company to overtime pay liability or potential penalties.
If you have made the decision to hire employees, you will need to accept the fact that being an employer means taking on additional responsibilities. Fortunately, help is available, and maintaining an effective employment law compliance program does not have to be difficult or expensive. If you would like more information, or if you are still trying to decide between hiring employees and independent contractors, we encourage you to contact us for a confidential initial consultation.
Speak with an Attorney at Jiah Kim & Associates
For more information about the legal considerations involved in hiring employees, please contact us to arrange your confidential initial consultation. You can call us nationwide at (646) 389-5065, or click here to pick an open slot on our calendar.
This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.