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Employment Q & A

Independent Contractor v. Employee

Q.  Your business is just getting off the ground. Can you use independent contractors to do all the work, or do these individuals need to be hired as employees?

A.  It depends. Individuals who devote (or are expected to devote) all of their time and attention to your business, who work at your direction and control, and use your equipment and tools, likely should be classified as employees.  Employers must deduct payroll taxes and issue W-2s to employees.

Employment Agreement v. Offer Letter

Q.  Do employees need an employment agreement or will an offer letter suffice?

A.  Formal employment agreements are not a legal requirement for any employee. In many cases, an offer letter that sets forth the key terms of employment and pre-conditions to employment will suffice.  If an employee will be eligible for severance, equity or terminable only for certain defined reasons, then an employment agreement may be necessary.

Benefits

Q.  Does an employer have to offer employees specific benefits?

A.  In many jurisdictions, paid time off, such as for vacation, sick leave or bereavement, can be set by an employer. However, some states (and cities) mandate paid sick leave or paid family leave.  Health benefits are not required unless an employer has 50 or more employees.

Employment Laws

Q.  Are very small employers subject to any employment laws?

A.  Yes. Employers with even just one employee are subject to federal and state laws governing immigration, workers’ compensation, wage and hour and unemployment insurance.  Employers with a handful of employees may also be subject to state anti-discrimination laws.

Severance

Q.  Do you have to pay an employee severance when they are terminated?

A.  No, unless the employee has a written entitlement to severance. An employer may decide to offer a terminating employee severance in exchange for a release of claims if such a release would reduce exposure to liability due to the termination.

For more information, please contact a member of our Early Stage & Emerging Companies practice group.