How Not Having Proper Documentation Can Ruin Your Company
Legal expert Ken Kirschenbaum explains why you should always put everything in writing when it comes to employee contract details.
You don’t need to have any written agreement with your workers, W2 employees or 1099 independent contractors, until you do; then it’s too late. So, of course, you need to have proper documentation in place.
What is that proper documentation? All employees should have a written contract. The contract will deal with the terms of employment, covering all the essential elements of employment, such as:
- salary or wages
- vacation and sick time, retirement plans and other benefits
- length of term of employment or employment at will
- employee duties and expectations by employer
- restrictive covenants
- dispute resolution
The need for a written contract varies with the employee and scope of duties. Every employee is a possible dispute or lawsuit in the making, though the likelihood of things turning sour can range from “never going to happen” to your having to walk on pins and needles so as not to offend the sensibilities of your employee.
It’s easy enough to get an employment agreement signed when hiring or even after you’ve had longtime employees if you explain it’s an across-the-board policy for everyone.
Too many of you out there don’t have an employment agreement, and you should. Invest in it today by getting the Standard Employment Agreement designed for the alarm/security/fire industry (alarmcontracts.com).
What about the 1099 independent salesperson? This is a sales-person you pay on commission, with or without a draw against commission. You need the Independent Sales Affiliate Agreement for the same reasons you need the employment agreement with the W2 employee.
If not a salesperson but a technician, installing, inspecting or repairing, then you need the Subcontract Agreement, again for much of the same reasons expressed above.
While most of you have protected yourself vis-à-vis you and the subscriber, too many haven’t documented the employee or independent contract relationship.
By the way, regarding the independent contract, be sure that person or company is truly independent. If not, employ them as a W2 employee and stop the charade before the IRS or your state tax agency or your insurance carrier red-flags you, conducts an audit and costs you plenty.
Don’t confuse an employment agreement with a company handbook. A handbook will deal with more issues and in more detail, and would not be something to modify for each employee.
Sometimes the significance of written employment, independent sales affiliate and subcontract agreements and handbook can make all the difference in whether you get into a dispute in the first place — and if so how that dispute ultimately gets resolved.
Having to establish and prove the facts that form the basis of the relationship with the other party can often be difficult, especially when each side is claiming diametrically opposed positions.
As the “employer,” you should expect to have known better, known to document the relationship. In fact, sometimes the “penalty” for your lack of proper business practice will be definitively held against you.
In New York (perhaps other states too), if you get into a dispute with your commissioned salesperson over the terms of the commission agreement, and you don’t have a written agreement, you are going to have a very unpleasant experience.
In court, only the salesperson will be allowed to testify what the commission deal was. What?! That’s right, you can’t testify. The deal will be what the salesperson testifies to. Think that’s harsh? Well then put it in writing, fool.
Oh well, there’s always next time — that is if your former commissioned salesperson doesn’t own your company now.
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