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After you have conceived of an idea and formed your business, you will probably find that you need some additional help to keep your company running. To address this need, you can engage people to assist your company as employees or independent contractors, or hire other entities to provide services to your business. Regardless of the path you choose, there are important legal issues that you’ll want to consider first.

While the distinction may not seem important, there are significant consequences flowing from whether your company’s worker is classified as an employee or as an independent contractor. For example, mischaracterizing a worker as an independent contractor when he or she meets the IRS definition of an employee can subject the company to employment taxes with respect to that worker.  Additionally, the default position of the law for the employer’s ownership of intellectual property is different depending on whether the worker is an employee or an independent contractor. It is important, then, to ensure your company’s intellectual property is secured from the start.

These are our key steps startups should take before hiring their first employee.

  1. Make the federal and local filings and registrations that new employers will need to make in preparation for their first hires
  2. Draft job descriptions – they used in determining whether a position should be classified as exempt or non-exempt under federal and local wage and hour laws
  3. Get the details right: state law notices, restrictive covenant agreements, offer letters

Many entrepreneurial companies want to have their employees and independent contractors sign confidentiality agreements and non-compete agreements. It is important that these agreements be carefully drafted, as what you believe you know about non-competes may be inaccurate.

 

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