Address Employment and Contractor Matters
Bringing on the first employee or contractor involves several important legal and administrative steps. Companies should be aware of the following:
Classification
Determining whether a worker should be classified as an employee or independent contractor is an important legal and tax question. Misclassification can result in significant liability. Legal counsel can help assess the appropriate classification based on the nature of the relationship.
Payroll and Tax Registration
Companies with employees must register with the appropriate federal, state, and local tax authorities, set up payroll withholding, and comply with reporting obligations. Many companies use a payroll service provider to manage this.
Intellectual Property Assignment
It is standard practice to require employees and contractors to sign agreements assigning to the company any intellectual property created in connection with their work. This is typically accomplished through a Proprietary Information and Inventions Assignment Agreement (PIIA) for employees, and IP assignment provisions in consulting agreements for contractors.
Offer Letters and Consulting Agreements
Formalizing the terms of engagement — compensation, role, at-will status, and IP assignment — in a written agreement is important for both employees and contractors.
Handbooks and Policies
As a company grows, it should adopt employee handbooks and workplace policies that comply with applicable employment laws, which can vary significantly by city, county, and state.
