Joined
Mar 18, 2018
Messages
9
Points
1
Before I begin with the question, I do want to mention that I did read through djbaxter's thread on Hiring and Managing Independent Contractors. I loved the info that was provided. I didn't want to post my question onto the thread as my question is two folded and specific to my situation.

As I am starting up my business, I have a super talented friend who I am looking to be a key part of my business success. She is more than onboard. As for me, I guess I am much more reluctant to a permanent commitment. I love her to death but she can change her mind often with the wind. With consistent success, I know she will be more aligned to staying the course. Considering startup and not yet having that steady stream of business, I want to hire her as an independent contractor. Later on, after the first year, hire her on as an employee. I need the reduced overhead and the cushion if things don't go as well as planned. Some of my friends and advisors have told me that it wouldn't make much of a difference considering I'm in an at will state. She is also a friend who won't be offended either way if things don't go as planned. What are your thoughts? How can I factor this into my Business Plan on the part of assembling my team.

Thanks in advance!
 
Joined
Jul 2, 2017
Messages
144
Points
43
I suggest your purchase order for the 1099 contractor services protect you both. As for your business plan, for a contractor relationship you will not need to plan for the employer cost of government FICA, FUTA and SUTA or Workman's Compensation Here is a generic sample for your contract:

Contract Agreement No. ____


This agreement ("Agreement") is made and entered into by and between
Client Name: __________________
Company Address:_________________

AND

Contractor Name:__________________ referred to as “The Contractor”
Contractor Address:________________

The Cleint and The Contractor agree as follows:

1. The Services. The Contractor shall provide support such as but not limited to the following:

(Enter Statement of Work)

2. The Client shall sign this order with The Contractor with rates, amounts and terms and conditions. The Contractor shall invoice the Cleint for payment against this order.

3. Compensation and Payment. Payment shall be made by the Client to Contractor in the amount of $________per ______ .

Payment terms shall be net 30 days after completion of service.

4. Service Location. The Service to be provided by Client under this Agreement shall be performed at __________ place of business.

5. Schedule and Days Off. The Contractor typically provides services Monday - Friday 8:30am - 4pm __ST, excluding national holidays. The Contractor may also provide services during evening and/or during the weekend if an emergency situation arises (Special Services). Each incident of Special Services will be assessed and agreed upon at the time of the request. The Contractor agrees to discuss availability during regular business hours for other time zones should the need arise.

6. Compliance with Laws. The Contractor and the Client shall abide with all applicable laws, ordinances, and contracts.

7. No Violation. The Contractor and The Client represent, warrant, and agree that this agreement will not violate any contractual rights, trade secrets or other rights of any third party.

8. Term and Termination. Each party may terminate this Agreement without cause upon thirty (30) days prior written notice to the other party. Provided, however, that each party may terminate the Agreement immediately without prior in the event of a breach of this Agreement by the other party. In the event of termination or expiration, The Contractor shall be paid Contractor's usual compensation up to the effective date of termination.

9. Nondisclosure and Nonsolicitation. The Contractor shall not directly or indirectly disclose to any person other than a representative of The Cleint at any time either during the term of this Agreement or following the termination or expiration thereof, any confidential or proprietary information pertaining to The client, including but not limited to customer lists, contacts, financial data, sales data, supply sources, business opportunities for new or developing business, plans and models, or trade secrets.

The Client shall not directly or indirectly disclose to any person other than a representative of The Contractor at any time either during the term of this Agreement or following the termination or expiration thereof, any confidential or proprietary information pertaining to The Contractor, including but not limited to customer lists, contacts, financial data, sales data, supply sources, business opportunities for new or developing business, plans and models, or trade secrets. Furthermore, The Company agrees that during the term of this Agreement and for a period of one year following the termination or expiration of this Agreement, The Company shall not directly or indirectly solicit or attempt to solicit any customers or suppliers of The Contractor.

10. Independent Contractor Status. The Contractor and The Client agree that The Contractor shall at all times be an independent contractor and that no relationship of employer and employee, partners or other relationship is created or intended to be created by this Agreement for any purposes, including without limitation for federal and state tax and other state and federal purposes. The Contractor assumes full responsibility for payment for all federal, state and local taxes imposed or required under unemployment insurance, self-employment, social security and income tax laws upon compensation paid to The Contractor. The Contractor shall not hold itself as an employee, partner or agent of The Company.

11. Indemnification of Company. The Contractor shall indemnify The Client against all liability, loss or damages, including consequential and incidental damages, and against all claims or actions based on or arising out of damage or injury (including death) caused by or sustained in connection with the performance by The Contractor of the Service, or based on any violation of any statute, ordinance, regulation or contract, and the defense of any such claims or actions including attorneys fees. The Contractor shall also indemnify The Client against all liability and loss in connection with, and shall assume full responsibility for, payment of all federal, state and local taxes or contributions imposed or required under unemployment insurance, social security and income tax laws, with respect to The Contractor's performance of this Agreement.

12. Indemnification of Contractor. The Cleint shall indemnify The Contractor against all liability, loss or damages, including consequential and incidental damages, and against all claims or actions based on or arising out of damage or injury (including death) caused by or sustained in connection with the performance by The Contractor of the Service, or based on any violation of any statute, ordinance, regulation or contract, and the defense of any such claims or actions including attorneys fees.

12. Neither Contractor nor The Client shall engage in recruiting of hiring each other's personnel for a period of 1 year following termination of this agreement.

13. Miscellaneous. This Agreement contains the entire understanding of the parties with respect to all matters referred to herein and may not be changed, amended, modified or waived orally but only by a written agreement signed by the party against whom enforcement of any waiver, change, modification, or amendment is sought. This Agreement shall be construed under the laws of the State of _______________ . If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force and effect. The headings to the sections of this Agreement are for reference only and shall not affect its construction or interpretation.

14. Notices. Any notice, request, demand, consent, waiver or other communication which either party may wish to serve or, may be required to serve on either party shall be in writing and shall be served by personal delivery, by facsimile, by prepaid recognized overnight air express delivery, by pre-paid certified mail, return receipt requested, or by pre-paid telegram addressed to such party at the address set forth at the beginning of this Agreement.

15. This agreement shall expire on _________________, or by mutual modification to this agreement by the parties with respect to a termination date.

IN WITNESS WHEREOF, the parties have executed this Agreement on this _____ day of ______, 20__


THE CLIENT: (Sign) (Print)

(Title)

Address:

City: State: ZIP:


Office Phone: Fax Phone__________________

**********************************************************************************

CONTRACTOR: (Sign) ______________________________________ (Print)

(Title) Owner

Address: City: ___ State: ZIP:


Phone: Fax Phone: ______________


**********************************************************************************
 
Joined
Mar 18, 2018
Messages
9
Points
1
Thank you Ken! From your response, can I safely say that hiring her as a Independent Contractor is the best option for my scenario?
 
Joined
Jul 2, 2017
Messages
144
Points
43
Thank you Ken! From your response, can I safely say that hiring her as a Independent Contractor is the best option for my scenario?
You are welcome. I would have to look at your business plan to give a good reading on your additional question and see how you plan to run your operation. The plan weighs heavily on the labor resource options to support it.
 

Chiedo

Member
Joined
Mar 28, 2018
Messages
11
Points
3
Thank you Ken! From your response, can I safely say that hiring her as a Independent Contractor is the best option for my scenario?
When I was in your shoes, I personally hired my friends as part-time employees and just kept an open line of communication about the fact that I was running a startup and anything could happen.

If you hire a contractor but end up treating them like an employee, you could become the target of Employee Misclassification which would result in fines and back-taxes with interest. I'm not sure how often that happens but I didn't want to take the risk.

You can read more about misclassification on the department of labor site. You'll have to Google. I wasn't able to post a link. Just google "Employee Misclassification"

My recommendation would be to just hire her as a part-time employee and get Quickbooks online with Payroll to make all the employee taxes easy. Just my two cents though!
 

John Racine

Member
Joined
Apr 29, 2018
Messages
6
Points
3
I spent 15 years working in HR and the advice above is pretty solid, BUT, there are other things you also have to consider in the W-2 vs 1099 scenario like:

  • Are you controlling work hours
  • Are you providing resources
  • Where will they be working
  • What will there responsibilities be
  • What state are you both in
This is certainly not meant to be legal advice, but it might be worth speaking to an attorney just to cover you. The last think you want is to ultimately be called as responsible for payroll taxes, benefits etc.
 

 Weekly Digest

Weekly Digest
Subscribe/Unsubscribe
Top