Personnel structuring and compensation considerations for early stage companies
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Employment Considerations for Early Stage Companies Hallie Miller and Holly Hammer First Flight Venture Center | February 6, 2014
Transcript of Personnel structuring and compensation considerations for early stage companies
Employment Considerations for Early Stage Companies
Hallie Miller and Holly Hammer
First Flight Venture Center | February 6, 2014
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Overview of Discussion – “Hot Topics” in Employment Law
Employee Classifying & Paying Workers Independent Contractor versus Employee Unpaid Interns Employment Considerations
Employment Status (Exempt versus Non-Exempt) Wage Hour Laws/Other Compensation Considerations
Documenting the Relationship & IP Ownership HR Practices & Why General Compliance Considerations
Taxes, Posting Requirements, Record-Keeping Employment Laws “by the numbers” (# of employees)
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Initial Contractor Classification
Independent Contractor vs. Employee Based on Relevant Facts; 3 Main Considerations
Behavioral Control Direction, Control, Training
Financial Control Profit and Loss, Investment, Payment
Nature of Relationship Contracts, Duration, Inclusion Services as key to business
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Initial Contractor Classification (cont.)
Operational Aspects Employees sign offer letters; independent
contractors or consultants sign contracts Taxes are withheld from employee pay;
contractors are provided a 1099 and required to pay taxes on their own behalf
Employees are eligible for benefits; contractors are not
REGARDLESS of how the relationship is defined, agencies use their own tests to determine how to classify the relationship!
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Initial Contractor Classification (cont.)
Results of Misclassification Fines Back taxes Back pay and Overtime Law suits to include in Past Benefits Exclusion from future Contracts Scenario - Audit from regulatory agency
(IRS, DOL, NCDOL, NCESC, Industrial Commission); disgruntled contractor or an disclosure against the reps & warranties in a corporate transaction
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Employment Classifications
Independent Contractor Employee - Typical Employment Status
Regular (never ‘permanent’) Full-Time - hired indefinitely; works a full workweek (often 40 hours)
Regular Part-Time – hired indefinitely; works less than a full workweek
Temporary/Seasonal – Hired for a specified, limited period, either full time or part time; can be hired directly (on your payroll) or through an agency (would not be employee for payroll tax purposes, but may be for other purposes).
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Employment - Compensation
Compensation – Fair Labor Standards Act Non-Exempt: Minimum wage $7.25
(currently) plus overtime (1 ½ regular rate of pay) must be paid for all workers unless exemptions apply
Exempt Employees: (paid a set salary regardless of hours worked) Executive Administrative Learned Professional Creative Professional Outside Sales
Employment – Compensation
(cont.) Unpaid Internships
Similar to training in an educational environment; Is for the benefit of the intern; The intern does not displace regular employees, but
works under close supervision of existing staff; Employer derives no immediate advantage; and on
occasion operations may be impeded; No job entitlement at conclusion; and Clear understanding that intern is not entitled to
wages Document expectations and ownership of IP
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Employment – Compensation
(cont.) Legal Risks of Misclassifying Exemption/Not
Paying Wages: Possibility of personal liability Liquidated damages equal to the unpaid wages Interest Attorneys’ fees Criminal sanctions
Business risks too! Cost & Delay to clean up Transaction Impediments
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Employment – Compensation
(cont.) Other Compensation Concepts
Deferred compensation Equity!!! Bonuses Vacation/Paid Time Off (Note on NC law: can disclaim payment on
termination in advance of when earned)
Severance Benefits
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Employment - Documentation
Documentation Associated with Hiring Offer Letters – should concisely define the
employment relationship: Key business terms Employment contingencies
Employment Agreement – severance Business Protection Agreement
Employment At-Will
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Employment - Documentation
Business Protection Agreements (Intellectual Property Protection) Confidentiality Ownership of Intellectual Property Non-solicitation (customers and employees) Non-competition Non-disparagement
HR Practices & Why
Recruiting & Hiring Start-Up Trend: Too Quick to Hire, Too Long to Fire Responsibilities for the role & goals to accomplish, you’ve
got your job description! Get the right person for the job! Don’t hire just because someone will work for Equity!
Performance Management Goals, training, informal discussions & PIPs
Investigations & Documentation
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HR Practices & Why
Separations “Things will get worse before they get better.” More Complicated with More Time
Things to Consider Final Pay (when, how) Deductions from Pay Return of Company Property Exit Interview Release Agreements References
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Employment - Compliance
I-9s 1st day, employee must complete/sign Section 1; Employer must physically examine the original
documents and record the information in Section 2 within 3 business days
Keep in separate, secured file (not personnel file) Retain for the longer of 3 years or 1 year after employment
ends E-Verify mandatory for certain federal contractors and for
NC employers with 25 or more employees; New hire reporting W-4/NC-4 Payroll taxes
Posting Requirements Consolidated Poster
Document Retention Personnel File (no
medical records,no I-9s)
Meal & Rest Breaks Multistate Environment
Employment - Compliance
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Employment - Compliance
Applicable to ALL employers, regardless of the number of employees:
FLSA/NC Wage and Hour Act
Federal Insurance Contributions Act (FICA)
Immigration Reform & Control Act (IRCA)
Occupational Safety and Health Act (OSHA)
Employee Retirement Income Security Act (ERISA) (if benefits are offered)
Equal Pay Act
Fair Credit Reporting Act
National Labor Relations Act (NLRA)
At least 15 employees Americans with Disabilities Act (ADA);
Title VII of the Civil Rights Act, Pregnancy Discrimination Act
At least 20 employees: Age Discrimination in Employment Act (ADEA); Consolidated Omnibus Budget Reconciliation Act (COBRA)
At least 50 employees: Family and Medical Leave Act (FMLA)
At least 100 employees Worker Adjustment & Retraining Notification Act (WARN); EEO-1 Reporting
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