So, you’re in the process of adding a new face to your mid-sized business. You’ve determined whether your new worker will be an employee or an independent contractor, based on the three categories defined by the Internal Revenue Service.
Now is the time to make the relationship with your consultants, independent contractors and employees official—with the appropriate paperwork. Ensuring you have the right contracts for employment relationships in place to establish the different business relationships you have with your employees and independent contractors is a critical first step when onboarding a new worker.
Here are the employment contracts you’ll need, depending on how your worker is classified.
Some contractors complete a month-long project and never do work for the company again. Others support the business for many years. Regardless, the nature of the relationship between a contractor and a company hiring that person requires documents that clearly detail each party’s roles and obligations.
Independent contractor agreement
The agreement should lay out some key provisions:
- What each party is responsible for.
- Timelines for the scope of work.
- How payment will be received.
- What series of events would force the termination of the contract.
- Termination procedure.
- Insurance language.
- Non-disclosure terms and confidentiality
- Non-compete and non-solicitation clauses for employers who are keen to protect themselves and their business interests from competitors.
These are just a few of the top things that should be in a solid independent contractor agreement, but by no means is this all that needs to go into it. Your business attorney will help you with all the specific details of this often underestimated, but very important agreement.
W-9 and 1099-MISC
Employers typically don’t withhold any taxes from the payments they make to freelancers, but they usually still need to check in with the IRS. Employers should have their independent contractors fill out the Internal Revenue Service’s Form W-9, which requires the contractor’s name, address and Taxpayer Identification Number or Social Security Number.
The employer-employee relationship is vastly different than the collaboration between a company and an independent contractor. Because of this, these documents require more detail as they spell out a long-term and much more involved employment arrangement.
You might have already extended the job offer over the phone, but you’ll want to put it in writing with a more formal letter that spells out the terms of the opportunity to the job seeker.
The letter states some of what you’ve already communicated over the phone, and some other important details, and helps to ensure that everybody is on the same page. The employee offer letter also is an opportunity to lay out whether the offer is contingent on the prospective employee passing background checks, drug tests or other requirements.
The employment contract may tick off some of the same information as the offer letter, but it will list more details, including the job title, duties, salary, start date, benefits package, confidentiality agreement and termination conditions. This is the formal legal document that makes the relationship between you and your employee binding.
Employee separation agreement
The agreement describes the relationship going forward when an employer terminates an employee. The Society for Human Resource Management recommends that it includes items such as
- Severance payment.
- Release from future litigation.
- A clause that prevents both the employer and the employee from speaking poorly about each other.
- Provisions ensuring the employee will turn in all company property.
Employee agreements are especially critical for business owners as they manage relationships with their many employees. When the relationship is strong, the documents provide peace of mind for both parties, ensuring employees enjoy some job security and employers retain the talent required to get the job done.
When it is rocky, the agreement can protect employers, spelling out the terms for a quick termination, securing confidential and intellectual property from disgruntled employees and providing for opportunities to resolve disputes outside of the courtroom.
Exactly how the documents should be crafted – particularly the contracts and agreements – will depend on your business’s unique needs. Working with an attorney schooled in employment and freelance contracts will give you the peace of mind that your business interests are covered every time you bring on new help—whether it’s a full-time employee or a freelancer.