Avoiding The Hidden Landmines When Hiring Employees Or Contractors With Employment Law Guest Expert And Attorney Jenny Young, Esq.

This is SSN: Story Studio Network.

 Lauren: Welcome to The Biz Doctor Podcast, my love letter to business owners the world over. I’m your host, Lauren Goldstein, award-winning business consultant and advisor whose fondly nicknamed the Business Doctor by my clients. My clients call me the business doctor because I help business owners who are burning the candle at both ends, diagnosed what is actually keeping them stuck in and buried under the day-to-day of their business, and then formulate a business treatment plan to help them adjust their business and team to fit them, and most importantly, support them in having what I call true entrepreneurial freedom.

If you’re ready to look at your business in a different lens and elevate yourself out of the business operator in the trenches 24/7, to visionary business owner and leader who can take a breath vacation and have more fun making an impact with your business, then grab your favorite beverage and your earbuds, and let’s dive into our latest episode.

Have you ever wondered if you should really spend that upfront money to draft an ironclad employment contract, or if copy paste from some pages on Google will suffice, or if you’re actually doing all the correct things when it comes to hiring? Well, someone who’s asked these very questions once or twice early on in my business, I can tell you that having an ironclad employment contract is the best investment for your business and making sure you have all your Ts crossed and I dotted is the very topic of today’s episode.

I have a juicy story to back it up that I’ll share later in the episode, so stick around. Oh and if you’re rolling your eyes or prepping to skip this episode cuz we’re talking about something boring like legal stuff, don’t, this will be well worth your time. And Jenny makes the subject, dare I say, fun and easy to understand so you can protect your business and create a win-win for your business and your team.

Welcome back to The Biz Doctor Podcast. I’m your host, Lauren Goldstein, and joining me in the studio today is employment law expert and attorney Jenny Young, who actually happens to be my attorney too. If you have a team and are thinking about hiring, this is going to be a gold mime and episode to help you avoid several critical pitfalls business owners fall into when it comes to hiring that could cost your business big.

Before diving into today’s power packed episode, let me properly introduce you to my guest here in studio. Jenny Young is a partner at Vela Wood, where she leads the firm’s employment law division. In her practice. Jenny advises and represents both employees and employers in a multitude of employment related areas, ranging from complex m and a transactions to general employment operations.

Jenny received her JD from the University of Texas School of Law in Austin, Texas. Bottom line, Jenny is gonna help us demystify employment law so we can better protect our businesses. Welcome to the show, jetty. 

Jenny: Thank you. Thank you for having me. Very happy to be here. 

 Lauren: I’m so excited about today’s episode cuz it’s just, I have seen firsthand how powerful this is.

So before we dive into that though, I would love for you to share a little bit more about your story, how you got into this type of. An impactful work you do with business owners so our listeners can get to know you and your firm Vela Wood a bit better. 

Jenny: Absolutely. So I graduated from undergrad, actually from law school in 2008 and um, started with a full service law firm here in Austin.

I didn’t have any idea what type of law I wanted to do, and they were so kind to allow me the opportunity to try different, um, departments. And one of the first areas that I worked in was employment law litigation. And I found it much more exciting and interesting than I ever expected. Um, shortly thereafter, I was pulled into a different type of litigation and had to step away from employment law for a bit, which was slightly upsetting for me.

But, you know, you have to do what you have to do to keep that job. Mm-hmm. , um, many years later, about eight years later, um, I realized that I just was really unhappy with the practice that I was in, and I assumed that that meant that I really disliked being an attorney. Hmm. Um, I decided to go take a year abroad and just leave Austin.

I had no real plans, didn’t know how I was gonna make money, but I had to get out of here . That that was, it was great . Um, but at that time, two law school friends of mine, um, that had been working together at a firm that was originally called Vela Keller. Mm-hmm. and had recently, um, been changed to Vela Wood.

They asked me if I was interested in doing contract work for them, um, specifically employment law. Hmm. My first thought was, I haven’t touched this in so long. Um, and this firm, the firm that I currently work at, uh, was a business law firm that focused a lot on startup work. Um, venture, um, mergers and acquisitions, things that I didn’t really have a lot of understanding or background in.

Um, but I said yes, and it was the best decision I ever made. Um, I’ve now been here for eight years practicing Wow. Uh, only employment law. And, um, it has been such a wonderful growth period for me, um, to learn so much about, um, startups, um, venture and how businesses work. And now I can provide really salient and helpful advice to friends of mine like you mm-hmm.

who have their own businesses. And, um, it’s been a joy. I really enjoy helping both employers and employees. 

Lauren: I love that so much and I think for me, cuz gosh, we’ve been friends for six years now, I wanna say. Mm-hmm. , something crazy like that. and I, I got to get my legal house in order, with my business and other businesses too that, that I’m, um, an owner in.

And I think what I love so much about how you work and how you look at the law is you’re always looking for a win. and really looking for how can you support us as the business owners to make sure we’re protecting our, our biggest asset, which is our business, but also being fair to the people that work for us.

Absolutely. And, and I just, I love your approach to the law, . 

Jenny: Yeah. I think we’re really lucky to have clients like you who care about, um, the individuals that work for you. Mm-hmm. . Um, and like you said, there’s a balance to be struck between what’s best for the business and also being a good employer. Um, and I think we help, you know, people  find that balance and you can feel really happy about, a, I’m protected, but b you know, I’m being fair and kind to people who are working for my company, which is really important.

Mm-hmm. . 

Lauren: Mm-hmm. . And something that, that you helped me really understand early on in my business was the difference between. an employee and an independent contractor because I know , I, I can see if you can’t see us, but I can see her and she’s, she’s kind of giggling. But I know that when I was first talking about this, you know, it seemed like I could employ somebody, like an independent contractor and kind of skirt the responsibilities and the taxes and all the, I don’t know, the paperwork that comes with having an employee

And you were like, no, no, you can’t. So let’s, let’s start there because I think this is such an interesting and complex, like nuanced delineation between when you can say somebody is an employer and when somebody is an independent contractor, that I don’t think a lot of business owners understand.

Jenny: 100%. I think it’s one of the most important, uh, bits of information that I provide to my clients, um, from startups all the way to, you know, midsize to large companies. Um, I’m often surprised at, um, the size of a company that can still be uncertain about what this even means. And, um, it’s a, it’s an I. thing to consider when you’re starting your business because you’re usually tight on cash.

Right. And so the very first idea is, of course, I would only engage contractors. Why would I hire an employee? I don’t have enough money. Mm-hmm. , a lot of, um, business owners think that that means they have to provide health insurance, um, workers’ comp, and it’s, it can be a little. , mm-hmm. . So, um, it seems natural to engage with someone as a contractor because as a contractor, um, you have a much lower level of protection from federal and state governments than you do if you’re an employee.

As an employee, you are protected, um, by laws that, you know, say that you can’t be discriminated against. You can’t be retaliated against. Um, they protect you from harassment. They mandate that you’re paid at least a minimum wage for every hour you work unless you’re an exempt employee. And so those types of protections are provided only to employees.

And that’s kind of the difference between an, um, an employee and contractor when you’re initially thinking, well, what do I do? How do I classify these people? The thing that most, uh, business owners don’t know is, The determination of whether someone is a contractor or an employee is solely determined based on law.

Mm-hmm. , it is not a decision that can be made between, you know, the employer and the worker. Even if the worker agrees to it. Even if the worker wants to be a contractor, um, [00:10:00] that will not protect you. Signing a contractor agreement will not protect you if you get into the crosshairs of the Department of Labor or whatever applicable state regulator.

Um, in Texas, it’s the Texas Workforce Commission, um, and even the irs. Wow. So penalties are very high. and they can actually bankrupt a company depending on how many con misclassified contractors you have. Wow. Um, and we’ll get into those, those details. Um, the first thing that you need to consider when you’re thinking about bringing someone as a contractor is what state do they work in?

Mm-hmm. , whatever state the worker, uh, physically lives and works in is typically the state whose law is going to prevail. Um, let’s go with Texas since we’re both here located in Austin, Texas, and mm-hmm. , you know, we’re pretty familiar with the Texas Workforce Commission, so. Again, there’s department of labor, level of, of, um, contractor versus employee test.

But, um, it’s safe, especially in Texas to to, to go by the Texas Workforce Commission’s Test. It’s a 20 point test. It’s very detailed, and if you can get through that test and determine that, that your worker is appropriately classified as a contractor, it is highly likely that you will also pass the Department of Labor’s Federal.

now, what are some of the, the major points to consider? The Texas Workforce Commission typically thinks of a contractor as someone who has their own business. Mm-hmm. not just an individual who does work for other companies on their own, but someone who has their own business. Um, that it’d be really great if that person has formed an llc, um, or even a sole proprietorship.

Um, but operating under like a business name, it’s always best to engage with that company specifically, and not the individual if, if possible. So that’s the first thing to consider. Do they have their own business? Do they provide services? A specialty that my business does not provide as a means to an end.

So, in other words, I’ll give an example. You got Acme Company and they provide, they have an online business where they sell apparel and t-shirts. Mm-hmm. Acme Company wants to hire on. A salesperson. Mm-hmm. , but they’re too small. They don’t have a lot of money, so they say, oh, well let’s just get a contractor.

We’ll give him or her commissions for, for getting, you know, sales and, and bringing people to the website. Um, and that’ll be, you know, that, that’s perfect. A little contractor role to the side. The problem is, is that Acme Company, as a business, they sell. Clothing and apparel, and they’re asking this individual to come sell clothing and apparel for the company.

Hmm. That is an intricate part of what the company does. And there there’s other elements to consider, but that right there, is one of the first things that the Workforce Commission will ask you is the, is the role that this contractor or worker is doing something that the company, um, needs to be done in order to even operate.

Hmm. So a, a better example of, of someone who would be a great, um, contractor to, um, engage with would be if Acme said, oh, our website needs some work. It’s, it’s, mm-hmm. , it’s just, it looks old. We’re not pulling in a lot of, you know, clientele because it just looks at a date. We need someone to make this more user friendly and just aesthetically be.

They go and they find Mike engineer, and he’s got his own company, you know, amazing websites, l l c, , and they engage with, with Mike and say, we, this is a, a task. You have a specialty we would like for you to, you know, uh, uh, uh, overhaul our website, make it look better. This is our general end goal, and here’s some parameters.

Go do it. Mm-hmm. And Mike says, sounds good. This is my fee. You pay a deposit upfront and you pay the, the final amount. Um, when you’re done and satisfied, you have two or three uh, times where you can ask for revisions. And then we’re, we’re concluded. If I stop working and I breach this contract, maybe you don’t have to pay me the full amount.

Um, but I’m gonna do this on my own time, at my own place with my own materials. Um, you’re not including me in any type of benefits insurance. You’re not asking me to come to company parties. I’m doing this three month engagement with you. No one tells me how to do it. They tell me what they would like, and maybe Mike checks in two or three times during that time period to say, is this, how’s this looking?

And they say, thumbs up on this. You know, this could look better. Thumbs out on that. At the end, Mike gives them the final product. They’re so happy with their website. They pay him his final payment. That engagement is over. That is a very classic example of a perfect contractor relationship. , but you don’t see a lot of that again at the startup phase.

Um, and so that’s overall, I would say what they’re looking for is the level of control. If the company has a lot of control, um, and if they’re like providing resources right, that belong to the company or they’re paying, um, at times you can pay for travel. But if you’re paying basically for this person to do this work, that should all be something that that contractor factors into their own business costs.

Mm-hmm. . Um, secondly, how do you pay them and how long is the engagement? Cuz at will employees are at an open-ended engagement with you and you pay them on a regular basis. Mm-hmm. and if you have that same. Um, situation worked out with a contractor. I’m doing air quotes for the people listening, um, that looks problematic.

That does not look like a situation in which you have hired on someone for an engagement to do something specific that they have an expertise in. They’ll also look at how reliant is this contractor on your business for their income and livelihood if they’re only working for your company. And some people even put, uh, language into their agreements that say you can’t work for other companies while you’re working for me.

Mm-hmm. . Um, some go as far and say you can’t work for companies like mine after you leave. Now that’s not always an immediate, um, you know, if that is. A part of the agreement that won’t immediately, um, make it, uh, you know, an employment arrangement, but it doesn’t look great. Mm-hmm. , I think the frustrating thing for business owners with trying to figure this out is that there is no, there’s no very clear outline for if, if one, two, and three, then four.

Right? It’s, yep. Well, if you have one and you also have five, and then maybe you have two. It might turn out that we think this is, is actually an employment arrangement, . It’s, it’s very hard to navigate. And that’s why it can be really helpful to engage the, the services of an employment attorney. Um, I know not everybody has those funds in the beginning, but when you’re at a point that you have the funds to engage an attorney, um, and you’re looking at bringing.

A couple of contractors, especially where you’re getting into a place where there could be multiple people that have been considered misclassified. You really want to of course, look at the Texas Workforce Commission’s, you know, test, which is online. Um, and you could look at that yourself. But, um, enlist the help of someone who understands which one, which points in that test are weighed heavier than others.

Um, and, you know, it’s a totality of the circumstances. They look at everything involved in that engage engagement to determine whether or not you have possibly misclassified someone. 

Lauren: Wow. Do y’all see why I love her so much? Because like, I I, it would take me years to even scratch the surface of what you know, and making sure my business isn’t getting in trouble for things.

I love that. That was a great explanation. Um, and I have. Another, well, I just actually have a little story that one of my friends who owns a a a practice here in Austin shared with me where I think when you really think about the pros and cons of an, of an employee versus a contractor, the contractor might seem sexy and easy upfront, but I think it actually can create a lot of chaos in.

So in this particular example, it’s a, it’s a relatively new practice. He brought on a new practitioner and he brought them on as a contractor. But then what happened, this is a cautionary tale, is because he didn’t have an employment agreement, she actually decided that she’d learned enough from him and then decided to start her own practice, and then took a lot of the patience that she had, you know, fostered this relationship with, with her.

So it actually ended up kind of biting him in the butt to not have this, this again, iron clad. Employment agreement about who were like, you’re working for me. These patients belong to the practice. You cannot take them with you. Um, and so I think it was a very costly mistake that had he had somebody like you to really think through what’s the biggest benefit to the practice, what’s the benefit to the practitioner?

Then he, he probably could have saved himself a lot of headache.

Jenny: Oh, absolutely. And I’m glad you brought that up and, and we’ll talk in a little bit more detail later on about the types of documentation that you want to have with your workers. But, um, uh, As a concept of law, an employee that is working for a company has no right and ownership to any intellectual property that they might be involved in, that they might create, um, any inventions, any even ideas that it relate to the company and the business of the company.

Um, you’re, you’re protected as an employer just by having them as your employee where. A contractor. It’s not that simple. It depends on what you agree to in the agreement, in the document, um, what belongs to, to, to who and, and when. Um, and so, yes, you’re right. You can get very complicated, especially if you’re just downloading a contractor agreement off of, you know, the internet, which I know a lot of people do, again, to save and cut costs.

Um, but those typically don’t have the appropriate language that you need to very clearly protect your company’s interests. Um, your confidential information, your intellectual property, all of these things that are. Very important, especially if you have the goal of one day receiving investment dollars and or selling your company.

One of the first things that you’re gonna be asked during due diligence is, is does the company have control and ownership of all of its IP and confidential information? Hmm. And if you’ve got people out there that worked for you as a contractor and never signed an agreement, and you’re not sure, this can lower the valuation of your business, all the way to the point of them deciding it’s not worth us purchasing because we don’t know for sure that we have the right, um, you know, to use or the exclusive right to use all of this information, which is part of the reason we wanna even purchase this, this company.

So it’s a very important concept for someone who’s, who’s, who’s got that in mind in the future. Like, I wanna scale and I wanna sell. Wow. 

Lauren: I had no, I had no idea. That is, I mean, that’s, that’s the ultimate chess game, right. Of, of selling and, and exiting and making sure that. that you’ve really set yourself up to have full ownership for sure.

Jenny: Exactly. And I’ll piggyback on that if that’s okay. Yeah. Um, because we haven’t yet talked about what the really, what the real damage is of Misclassifying, um, a worker. Um, and this will play a part also in the valuation of your company. Mm. If that’s your goal. Um, so if the Texas Workforce Commission finds that you have misclassified someone as a contractor and not an employee, there’s multiple ways that they will find you.

First, they will look back and. Sometimes this doesn’t, uh, matter depending on how much you did pay the contractor overall. But they’ll look to see what minimum wage should have been for every hour that they assume the worker if, cuz I, most people who have contractors are not asking their contractors to keep track of their time.

Mm-hmm. . So the workforce commission will almost always air on the side of a greater amount of time worked. Mm-hmm. . So they will calculate what minimum wage would’ve been for all of those hours. And then if there’s anything, any reason to support or any evidence to support overtime that someone worked more than 40 hours in a week, then they will assess overtime fees, time and a half in Texas.

Mm-hmm. , some states much higher, um, for every, you know, hour over 40 hours in a week that they believe this, uh, worker worked. Wow. In addition, if they believe that you. Classified them as a contractor in bad faith, meaning you had a reason to believe that that wasn’t appropriate, then they will double the amount of damages right off the bat.

Holyokes. Exactly. Oh boy. . Then it keeps going, oh no, there’s more, there’s more. They will find you a penalty, an interest penalty for every, um, pay period that you were late and not paying this employee. So every two weeks you get, there’s a, a fee for that. There’s also the cost of, um, unemployment tax that you should have paid to the state all the way back as far as it will go.

Oh my gosh. Um, and then interest on that because, oh my gosh, you were late paying your unemployment taxes. So this can, as I said, it can, I’ve seen it, it can bankrupt a company. This can get so expensive, so fast. It’s not a minor penalty. It’s not a minor fee. And the Texas Workforce Commission, like a lot of states, has an agreement with the internal revenue

Oh boy. Uhhuh. . Where they’re allowed, it doesn’t happen often, but they are allowed to then report the company to the irs. So the IRS then comes after you for all of the payroll taxes that you fail to pay. So, oh my gosh. A, it could bankrupt you or just put you in a very, very, um, negative financial place trying to fix this.

Once the penalties are levied against you, they can also put, um, a lien on your business, a public lien on your business, which is embarrassing. Yeah. Um, but if we’re, again, that business owner who’s thinking about scaling and selling, that is something that you would have to disclose in due diligence as well.

We have. All this potential liability that’s hanging around out there for, for pay, like back pay and fees and back taxes. And that if they still wanna move forward with buying your company, they’re going to deduct what they think the highest potential liability is from their purchase offer price. Um, so you’re really putting yourself at a major disadvantage.

Lauren: Wow. I had no idea. I’m stressed, sweating, just thinking about that . Wow. I mean, like, this is why I was so excited to record this podcast, podcast episode is because like, I don’t  think most business owners know this and like they 

Jenny: don’t, and there’s really no reason that they should. Um, it’s, it’s employment law is, in my opinion, it’s, there’s not a very, um, Easily accessible resource that clearly explains these risks, um, and requirements.

The TWC has a, a decently comprehensive website and um, a PDF that you can download that’s called, especially for Texas employers. And it outlines some of what I’m discussing, um, not to the degree that mm-hmm. , I have laid it out. But other than that, if you don’t know where to look for it, you don’t even know where to begin.

Yeah. And I mean, I wouldn’t know this information, but for practicing this type of law mm-hmm. , um, I also get a lot of pushback with, with, um, clients that this is the first time they heard it and it’s a real damper on what they were planning. Mm-hmm. and, you know, they say, well, I’ve been a contractor before, or This is how everybody in the industry.

and my response is, I’m sure it’s still wrong. And if you get caught, then you’ll have to be, you’ll have to be the example. Mm-hmm. . Um, yeah, I think listeners might be wondering, well, how would I get caught? So I’d like to quickly outline how that happens. Um, what often happens is a contractor at some point files for unemployment. So a lot of times contractors don’t understand that unemployment is not, uh, a benefit that they receive.

Mm-hmm. . Um, so say they worked for you and then they worked for another company and they. They got fired or whatever, and they list out their last few employ employers, air quotes again. Mm-hmm. . And they, they put your company down. Well, then the Texas Workforce Commission goes into their system and looks at the unemployment taxes that have been paid on behalf of that employee.

Mm. And they say, why is there zero employment dollars paid for? You know, Mike, the. and they, they come to, you know, your company and they say, excuse me, sir , we don’t see any dollars in here for this man. And he says that he, he wants unemployment. Please explain. Yep. And the company says he was a contractor and then they go prove it.

Oh boy. , that’s how it starts. Exactly. And that’s the most typical way. Um, other than that, there can be, uh, random audits where the Texas Workforce Commission will say, this year we’re auditing every beauty salon in Austin, Texas. And they just reach out to you randomly and say, send us a list of all of your workers, um, contractors and employees.

And then they start asking you the questions and say, oh, actually we think these have all been misclassified and now you owe this much money to fix it. Yeah. And then the last way is, uh,  some, a contractor who leaves and they’re just really mad at you. And they, and then they file a wage claim with the Workforce Commission and say, I should have been classified as an employee, but they wrongfully classified me as a contractor and they owe me X, Y, and Z.

Mm-hmm. . So those are the three main, main ways that something like this even comes about. Um, and so I let especially startup clients who are like, I can’t afford this. I have to have contractors. What do I do? Yeah. I make sure they at least know what their risk is and what they’re gambling. Mm-hmm. . Um, and then again, the chances that this happens, you know, these are the ways that you could get caught and you, you have to roll the dice and see what makes the most sense to you when you’re really low on funds.

Mm-hmm. , and because we work with startups a lot, we understand that that’s a, something that has to be considered. Um, but I’m a very risk averse attorney, so I’m very often like, find the money somewhere. You’ve got it. Yep. You can do it.

Lauren:  And, and hang in there guys, I’m gonna tell you a story that, that you will just, it’s just gonna make your jaw drop, but it’s gonna prove this point of find the money because it’s kind of like having insurance for your house.

You hope you never use it, but God, are you so happy that if something happens, you did actually pay those premiums. Um, before we actually talk more about, you know, compensation and pay and reducing things to writing, I do wanna talk about something that got brought up in an interview I was doing, um, yesterday, which is exempt and non-exempt employees.

This is something that is a little bit new to me that I was actually. Has so many layers. So I’d love for you to tell everybody a little bit more about that. 

Jenny: Absolutely. Um, yet another landmine . Right. That employer were like, what are you talking about? Yeah, exactly. So, um, the Fair Labored Standards Act, which is, I’m sure a lot of people have heard of the flsa.

Basically this, this law, this federal law applies to almost every company. Um, I’m not gonna go into the details of it, but just assume it applies to your company. Mm-hmm. , this law basically says that if someone is an employee, they must be paid at least minimum wage for every single hour they work, and then time and a half for any hour.

They work over 40 hours in a week. That is the federal law. States also can create their own specific employment laws. If the state’s employment law requires a higher level of protection for an employee, then that will rule. If the state, if their law requires a lower level of protection, then the federal law will will rule.

Um, so in Texas, Texas has, um, created the Texas Payday Act, um, but they also follow the FLSA for, for some elements of that. Non-exempt and exempt falls under the F L S A. And basically what that means is if an employee is considered exempt, then they’re exempt from the laws of overtime, and in some cases minimum wage.

Many of my clients incorrectly believe that exempt solely means someone’s paid on salary, and that is not the case. In order to properly classify an employee, there’s all sorts of classifications going on here, , but to classify your employee as exempt or non-exempt, there are very clear and specific, um, laws that you can actually easily Google the F L S A and look for exemptions, and they have PDFs that that really go into detail on how to do this.

But it’s based on not just the salary, but it’s also based on the employee’s duties. So the most common ones are the executive exemption, the administrative exemption, the professional exemption. Um, and I often use the computer employee exemption a lot because that, that applies to people that are like engineers.

Um, you know, doing that type of computer work, not just typing on a computer, right? Oh, I’ve, I’ve had clients try, they try . 

Lauren: I mean, because we’re crafty. 

 Jenny: We’re crafty. Then you don’t have to worry about overtime and, you know, you can require this person to work as much as needed and, and, mm-hmm. . But that also comes with things like you can’t deduct certain amounts of, someone doesn’t come to work like one day in a week.

But that’s not important for, for today. For today, the generally the exemptions require that an employee is paid on a, on a salary basis. And there’s, um, typically a threshold of, at least right now, it’s around $36,000 a year. Um, and then from there they say, okay, so you hit that first, uh, salary threshold.

Now does the employee do X, Y, and Z? Do they fall under this exemption because they perform these administrative tasks for the company? And this particular way, it’s very specific. Um, the executive exemption exemption would be for, you know, like a C level or a vice president who is in charge of a specific area in the company.

Um, they manage employees. They make at least sort of $6,000 a year. Um, and I think those are the, the main components of like that exemption, just to throw out some. The computer employee exemption is one of the few that doesn’t require a base salary, but requires at least a base hourly range. Mm-hmm. , I can’t say off the top of my head what that amount is.

I believe it’s somewhere in the 2020s, uh, like 20 something dollars an hour. But, um, they can also be exempted under that. And so, again, it’s easier for an employer if they have exempt employees because they don’t have to have people clocking in and out. They don’t have to calculate mm-hmm. . Um, however, if you, you face the same level of misclassification issues, dang it might Right.

Minus the, like the major unemployment tax issue cuz you’re, you’re clearly still playing, paying your taxes because they’re an employee. Mm-hmm. . But you’re gonna get fined for the, um, minimum wage and the overtime, um, issue. One little thing I’ll throw in there to make it even worse, is that states like, oh, great.

California my favorite, California, woo. They have the most employee friendly and, and employee, um, you know, employee protections, laws than any other state. And California has their own exemption laws, , oh boy, that are a higher threshold than even the federal level. So what happens a lot is my clients call me and say, I need a, I need a template.

I need a template employment agreement, or a template contact agreement. And I always say, Well, doesn’t really work that way. Shuts I could, you gotta tell me what states you plan on hiring in and then I can make sure the template applies to that state. But if you go willy-nilly hiring people in a bunch of other states, we haven’t, you know, narrowed this to, you can get yourself into a lot of trouble.

Um, so while the contractor and employee classification, I think, is of higher importance, the exempt and non-exempt classification, um, is, is, is right there behind it with needing to understand and properly classify, 

Lauren: gosh, you weren’t kidding. Another landmine, . They’re everywhere.  They’re everywhere. But that’s, that’s a really good segue into, you know, we’ve talked about minimum wage, we’ve talked about, you know, how the different classifications are, but something that you’re.

you’re pretty adamant about is reducing all of this to writing. So tell me, tell me what that means. Absolutely. 

Jenny: So again, um, many employment laws require that, um, employees be provided with at least very clear explanation of how much they’re getting paid and how often they’re getting paid. Some states even require that you say exactly how they’ll get paid or where they’ll get paid, which is kind of an old school thing, right?

You don’t really pick up your check at the office anymore. 

Lauren: some of these laws maybe small, updated.

Jenny: Yeah, exactly.  let’s, let’s put it out there for the small towns. Um, but this is so important because, again, when an, when an employee or a former employee makes a wage claim against the company, The regulatory agency that’s com that’s looking into this claim is going to ask you first and foremost, what agreements do you have?

What’s in writing? What has been agreed to in writing with this employee? And if the company cannot produce that, that is going to be basically used against the company. Because the way these regulatory agencies think is the company has more resources, they have more money, they’ve got the bargaining power, they have the ability to actually be the ones to make, um, you know, the details of the agreement and draft it up and have the employees sign it, so the employees at a disadvantage.

So it’s then the employer’s responsibility to be able to prove that they did everything right. It’s a little bit backwards than I think some people would expect, right? You would expect that if someone makes a claim that your company has done something wrong, they would need to prove it. mm-hmm. , but in practice, in employment law, and many times it comes down to the employer disproving the claim.

Mm. And the best way to do that is if you have actually written out and agreed to a very clear understanding of not only the pay, but the details of the relationship between you and this contractor, or you and the worker, uh, the employee. Um, that way it’s so much easier for you as an employer to protect yourself and to say, no, no, no, no.

That was not the agreement. This, here it is in writing. This is what we agreed to. This is the expectations were clear. Um, and then you can kind of easily disperse any type of claim that is, you know, without merit, pretty easily. . 

Lauren: I love that. So is this all wrapped beautifully into an employment contract or a contractor agreement?

Where does all of this go? Or is it part of the offer letter and actually what’s the difference between an offer letter and these agreements? Yeah. 

Jenny: Um, so offer letter and employment agreement are often used interchangeably, but I think two very distinct documents. Okay. An offer letter in the way that I use it in my practice is only really useful, um, in three scenario.

One, if you’re trying to woo, um, you know, a candidate from a current job that they’re in, and they’re like, I’m not leaving this without something in writing, saying what you’re offering me and what I’ll, what I’ll get when I get there. Mm-hmm. , um, two, if you are looking to do a background check or ask them to submit to a drug test, these both require authorization forms be signed.

And so an offer letter is a great way to say this is the basics of what we’ve agreed to, but this is conditional. Mm-hmm. on you, pa passing these tests. The offer, the authorization forms are, are included. Please sign in return. Mm-hmm. , um, The, the last,  you know, situation scenario in which an offer letter I think might be helpful is if you really wanna make sure that they understand that they’re going to have to sign an employment agreement that might contain something like a restrictive covenant, which would be like a non-compete or a non-solicit.

Because some states require that you give them advanced notice. This is going to be required of you, um, consider if you still wanna take this offer, . Okay? But the offer letter basically gives really high level info. This is the role we’re looking at providing, um, you know, having you come into this is what we’re thinking of paying you, you’re gonna get benefits, um, blah, blah, blah, blah, blah.

But you know, it’s all conditional on X, Y, and Z. Whereas the employment a. Is the holy grail of documents. Mm-hmm. , in my opinion, the type of employment agreement that I provide my clients with is a one-stop shop. You don’t need to then have a separate confidentiality agreement, a separate nda, a separate non-compete.

I combine all of that into one easy document. So the expectations between the employer and the employee are crystal clear. Um, I do, I am a huge proponent of handbooks and in some states it’s ab it’s actually required. Mm-hmm. . But short of going into all the very, very nuanced detail that a handbook does, an employment agreement will address very important, um, information that’s related to the, the arrangement such as who owns the intellectual property, what’s considered confidential, and, and who does it belong to?

Um, does the company, uh, pay you bet health benefits? Do they have a four 401k? Um, are you allowed to moonlight? Can you work for another company while you’re working for them? Do you have a post-employment, non-compete or nonsolid? Mm-hmm. . All of this, in my opinion, should be included in the employment agreement so that if you never end up getting around to a handbook, would you still should, but if you don’t get to it , at least you have this.

Um, so I often only use employment agreements unless like I described before. It’s one of those scenarios in which an offer letter makes a lot of sense for contractors. Again, it’s just a contractor agreement. You don’t give a contractor an offer letter that looks like you’re offering them, uh, employment.

Um mm-hmm. and the contractor agreement, again, will outline the fees that they’re receiving, what the company will and won’t pay for. Um, how do you terminate the agreement? And that’s something I didn’t mention. The employment agreement, very important to discuss termination details. Mm-hmm. , um, do you get severance?

Do you not? How many days do you need to provide them before you leave to leave in good standing? That type of thing. Um, but yes, so the contractor agreement and the employment agreement are the holy grill documents, in my opinion, and are very, very important because otherwise it’s a, he said, she said situation, um, about, well, they said if I could get commissions, I got 10% commissions on everything and the employer.

What , we said 10% on collected revenue, specifically from this one area of the company. And you’re saying that we told you 10% of the whole business revenue, and guess what the, the regulatory agency is gonna do? They’re gonna decide what the employee Hmm, hmm. 

Lauren: Ah, there’s so much juiciness in that. And so, so what I’m hearing is cover letters.

Or cover letters. Yeah. That’s not a thing. , um, offer letters are less of a thing now and you can kind of, you know, just combine it all into this employment agreement. Contractor agreement. Contractors obviously don’t get an offer letter. But I love that you put everything in one cuz I’m, I’m fractional COO for a company right now, and I was, I was said, send me this stuff so I can review it mostly so I make sure that they’re not gonna get in trouble too.

Mm-hmm. . And then he sent me seven separate PDFs and I was like, exactly 

Jenny: what is happening. It’s so harder for both the employee and the employer to keep track. And what happens a lot when you separate all of these, these documents is you only end up having the employee sign one or two or, and then you miss mm-hmm.

three or four and five. Um, and I can’t tell you how many times someone’s looking to terminate and I come in and say, okay, let’s make sure we’re doing this right. Give me, give me their documentation. And they go, well, she signed the offer letter, but she didn’t sign the employment agreement and I think she signed her equity, you know, grant.

But, um, she didn’t sign the confidentiality document. And that’s what happens. So if it’s all together in one. , you’re, you’re covered. Right? You’re covered. And yeah. The other thing I will say with regards to that is I tell my clients to institute a very firm hard rule that people do not start doing any work whatsoever until you have received the signed version of the employment agreement.

Do not let them work for two to three months. Do not let them even work for a week. Because in some states, if you have a non-compete in your employment agreement and they don’t sign it at the very, very beginning of work, it becomes mm-hmm. unenforceable. Um, oh yeah. And then you also run into like an issue where you give them some level of an argument about, well, I worked on  that before I’d even signed anything.

So that might not be your confidential information. That might be mine. Mm. It’s a, it’s not a great argument, but I’ve seen people try and say, well, I never signed that. Um, so. , try to remember if you’re gonna use an employment agreement, which I hope you do, . Do not let the employees start working until they’ve executed that document.

 Lauren: Yes. All right. So now has come the time for, for me to tell you this story, um, of where we had hired a contractor to build a website. And of course, because Jenny is trusted friend and attorney, I said, Hey, I need a contractor agreement for this, for this gentleman. And it started out okay and things got really weird.

Like, he was like, I need a, I need a document that has all the logins. And like, I’m like, but why? Like, we gave you like a company email to, to like single sign into everything. And he, he was just being really weird about it. And then [00:47:00] we would have these planning meetings and then the stuff we would get back was just, it had clearly gotten lost in translation.

So, um, I mean maybe this is gonna get me in trouble by, by giving them an employee or a company email address. But I liked it cuz it, it gave me con power over like if they, once they left, we owned all the stuff. We didn’t have to transfer anything. I also, in this case, could go into the back of G-Suite and look at ips cuz things just started not to add up.

And I’m like, this is just getting really weird . So I go in and he’s supposed to be in Florida, but then there’s a series of logins from Bangladesh, from other areas of India. And so I talked to my, my, um, other employee who’s working on this project with me and, and I’m like, what do we like, this is weird.

Like, and she’s like, this is so weird. I’ve never encountered this before. I’ve worked with a lot of developers. She’s, she’s my head of marketing. and I was like, I think we need to fire him. Like obviously, like something weird is happening. So we, we, I’ve, before this, before we had this conversation with David, I um, asked Jenny, I said, you know, is, is my butt covered in this situation to let this guy go?

And she said yes. So we get on the phone or the Zoom call with this, this contractor and I will never forget how it went down. He fully admitted that he was outsourcing the development work to other people in different countries, uncomfortable. And my fa like, I wish I had a picture of my face cuz I was just astonished cuz I was like, I, I literally said to him, you do know that in your contractor agreement it says you will do the work and that you will not outsource it.

Like these people have not been like, they’re not under our nda, they’re not under any of our employment agreements. They’ve not been background checked. We have very sensitive customer data that they now have access to. Like, buddy, what are you thinking? But then my favorite part of this story is he gets very sassy with me and very, very mad because he’s been found out.

And, um, so we’ve obviously during this point, um, me and Katie have tagged teams. So all of his access has been taken away while we’re having this conversation and, and firing him. And then he says, well, I’m gonna send you a final bill. I’m like, great. This is, this is perfect. He sends me a bill for something like astronomical, and I’m just like, absolutely not one, you didn’t do this work.

Number two, this is like highly inflated billing. So again, I went to Jenny and I said, what’s our recourse here? And um, she said, well, what, what did you say? What do you think is. I think is what you asked me. 

Jenny: Something along those lines. 

Lauren: and I, I mean, at that moment I was, I was, I was a little worked up, so I probably went a little lower than I could have.

But um, she said, great, okay, well I’m going to write this letter . And it was, I wish I had it to read on the show , but it was the most like forcefully, graceful, articulate, slap you in the face, like clearly, like we are drawing a line in the sand Mr. Of where you have violated section X, Y, Z and are in breach of contract.

 And like Lauren’s actually not obligated to pay you anything cuz you breached the contract, but as a sign of goodwill, she’s gonna give you x amount of dollars.  

 Jenny: Yeah, that was an amazing, I mean, The goal. Amazing. The goal, the goal, , but I see it all the time. I see it all the time. And you were lucky that, that, that ended up resolving, um, in a decent amount of time and mm-hmm.

without costing you too much money and heartache, but it did, you know, take away time from you running your business. Yeah. And, um, you know, it, it could have been way worse than it was, but it could have, you had an agreement with him, you had stuff in writing, which was very, very helpful. Mm-hmm. . And, um, that made it easier for me to defend you and to help you in the situation.

So very, very important, especially anybody out there who, um, has employees or contractors working on commissions. Let me tell you, commissions and bonuses are some of the most highly litigated. Uh, points in employment law, that’s, people do not write these out. They don’t write them out clearly, and they don’t, um, even know about some of the hidden landmines in the language that could really put your business, um, in a, in a really bad spot without having that clear language.

Um, so again, just I cannot emphasize enough the importance of writing the agreement and making sure you are. Absolutely clear. Like, like, think about that, that, um, I don’t know if everybody did this, but I think a lot of people probably did this when they were in elementary school. Um, and you had to describe to your teacher how to make a peanut butter and jelly sandwich, , do you remember this?

And people would be like, put the peanut butter on the bread. And so she’d just take the whole can of peanut butter and just stick it on the bread. Put it on the bread. Okay. Now what?  Mm-hmm. . 

Lauren: Mm-hmm. . 

Jenny: That’s kind of like, You have to say, twist the lid off, stick a knife holding one end of the knife, stick it in and get the peanut butter.

That’s how you have to write out your bonus and your commission language and your, um, your agreements with your workers, because it really does get down to the nitty gritty. Mm-hmm. , I mean, there have been, there have been legal cases, sorry, legal cases where, um, everything came down to the placement of a comma.[00:53:00] 

Lauren: Oh boy, that’s crazy. 

Jenny: Dead serious. Oh, wow. Yes. . 

Lauren: That’s, that’s a lot. And it’s, it’s funny that you bring up the peanut butter analogy because I, I literally, I feel like maybe we’re aging ourselves, , but I brought this up last week when I was, um, when I was trying to explain the difference between an so p that she downloaded off the internet to use this, the template versus like how you actually have to write an so B.

Yes. Um, so I love that. And I mean, I just, I just, I’m so excited that you, you know, came on the show today and um, and just helped shed some light on this and, and like, is it demystify employment law? Because like, like you’ve said a couple times, there are so many landmines that we’re not aware of that could really get us in trouble even if we are well-meaning.

And I, I think what I love most about, you know, the contracts that we’ve put together, cuz you’ve done , you’ve done so many for  me. Um, is that it keeps honest people Honest. Yeah. Like I think that’s really what it’s about. It’s just everybody has a clear understanding. Everybody’s on the same page, everybody’s got the same expectations and like, god forbid a, you know, it goes sideways.

Like you’ve got, you’ve got the law on your side in, in both situations. 

 Jenny: Absolutely. Yeah. 

Lauren: Wow. Okay. So before, before I wrap us up, cuz this has been, this is, this  has been so great. Do you guys see why she’s such a powerhouse and you want someone like her on your team? I mean, I could talk about this all day, but I am gonna start wrapping us up.

Uh, and I know we’ve covered a lot, but tell me, are there any last nuggets or pieces of advice that you wanna share with our listeners that we didn’t cover before we. Yeah, I mean, 

Jenny: I think if you are in an early stage, um, or small business and you’re hearing this and you’re thinking, I cannot afford an employment attorney, I, I don’t even know if I can afford to pay  employment taxes.

Like I said earlier, in the, in the, um, in the podcast, you just, you have to know what your risks are and then make it a priority that as soon as you can pay for legal advice and or appropriate documents, it’s worth your money. It’s worth its weight in gold. Mm-hmm. taking shortcuts early, leave you, leaves you, um, with a potential liability, potential large liability down the line.

So spend the money up front and you’ll actually end up saving yourself a lot of money in the long run. 

 Lauren: Hmm. That is a great nugget. And I think what I found with working with you is it’s. Yes, it’s an investment, but it’s almost never as big of investment as I thought it would be. So I like worked myself up into a ladder that it was gonna be like $10,000, but then it wasn’t.

And like a lot of these things I can actually use over again, which is great. So you’re investing in like an independent contractor that then you can repurpose for contractors down the road or employment agreements and so Sure. Maybe you spent that $3,000 upfront, but then you don’t have to spend it again.

Jenny: Exactly. And then you just have somebody that’s on your team that can be like, don’t do that.

Lauren: Oh man. Okay. So tell our listeners, how can they further connect with you and the services of. 

Jenny: Absolutely. So we have, um, a great website. We’ve actually won an award for this website. Um, wow. Yeah, it’s www.velawood.com. And what’s really great about it is that we have a resources tab, and under that tab we have a very comprehensive blog that you just type in a keyword and you’ll pull up a, you know, a blog entry that we believe is very, very helpful and  insightful.

We try to give, um, potential clients and clients as much resources that we can, that doesn’t require them to pay money. Um, and then from there, if you need a little bit more information, then you can reach out to us through the website. We also have a podcast. We have a couple of podcasts out there. I probably should know all of the names, but , we’ve got a few.

You probably just re uh, search Vela Wood and, and they’ll all come up. But yeah, and if you, if anybody listening has, um, a specific question or wants to get in touch with me, you can reach me at jayYoung@velawood.com. 

Lauren: It’s beautiful. Beautiful. And you guys are a full service business law firm. Like it’s not just employment law, it’s all the things.

 Jenny: Absolutely. We’ve got specialists that do intellectual property, um, tax, um, m and a work, venture work, um, real estate, everything but litigation. We actually have a, um, a couple of attorneys who, including myself, I don’t like to tell people this, but they have litigation background-

 Lauren: I saw that come out in the letter that she wrote.

Jenny: Yeah. So we have, we have some strong litigation background here. We, we prefer not to take it all the way, but we’re really good at, um, you know, pre-litigation, negotiating deals and, um, settling, you know, matters that could potentially go to litigation. So full service and, um, yeah, we’ve, we’ve got somebody to, to help you with any, any question you might.

Lauren: It’s true. And if, and if for some reason you can’t, you always know the person that I, I get to, to talk to, to actually make that work. So I love this. Well, this has been great. Thank you so much for coming on the show and just sharing all of this wisdom with our listeners. Thank you so much for having me.

It’s been of lovely. Of course. All righty, everyone, that is it for this week’s episode. Thanks so much for listening in. If anything we shared sparked something in you, we’d love to hear from you. So let’s connect, tag or DM me on Instagram at it’s Lauren Goldstein or LinkedIn or wherever you hang out on the interwebs.

Also, don’t forget to  subscribe. See your first to get notified when our next episode is live and ready for your. Thanks again for listening. Until next time,

thank you for listening to The Biz Doctor Podcast. Now, I like to say that friends, don’t let friends WebMD your business. So if you’re wondering what your next steps could be, here are some options for you no matter what. Head to the show notes or to my website, goldenkeypartnership.com for some impactful resources to support you getting out from under your business.

That’s also where you’ll find the links to learn more about our services and how we support business owners just like you, who are ready to make the successful jump from business operator in the trenches to visionary business owner with more freedom and flexibility. All that info is on our website, so pop on over to learn more or get in touch goldenkeypartnership.com.

Finally, if you love The Biz Doctor podcast, I’d be so grateful if you would share it with your friends and network and give us a five star rating or review wherever you listen to your podcast.

This is Story Studio Network.