Once a startup has properly classified its worker, it should document its relationship with the worker in order to clearly identify the classification, compensation and benefits (e.g., base salary, bonus, commissions, equity, PTO/vacation, signing bonus, relocation reimbursement, and health insurance benefits), and other terms and conditions of the arrangement.
Contractors should sign a contractor agreement with provisions covering fees, treatment of the startup's confidential information, assignment of the contractor's inventions to the startup, and other basic terms. They should not be formally or informally referred to as employees of the startup or sign documents that the startup normally provides to its employees, including its employee non-disclosure, confidentiality, or invention assignment agreements, as this can affect the nature of the contractor relationship.
Employees should receive more robust hiring documentation, including, most importantly, an offer letter and an invention assignment agreement. The documentation should be presented to (and signed by) contractors and employees before any work begins and kept electronically or otherwise by the startup.
In addition, startups should ensure that they comply with all applicable federal and state requirements related to onboarding new employees, including those relating to employee notices, tax filings, and insurance coverage. The startup may consider outsourcing these issues by contracting with a professional employer organization (PEO), which is a third-party entity that can manage certain human resources functions for the startup.
For more detail on hiring and terminations for startups, click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.