What’s the difference between employees and contractors?

Employees are people that the company hires to be fully dedicated to work for your company. They can be either full time or part time, but the company owes a great deal of duty to them.  The company needs to provide insurance, certain health and retirement benefits, and pay for their social security taxes.  Employees are typically granted a company badge, work on site, enjoy company benefits and should be hired, supervised and fired through well thought out processes.  On the contrary, contractors have a much “loose” relationship with the company.  They typically work for more than one company, can do their work with a large amount of freedom and are easily terminated without giving much reason or notice. They typically use their own equipment and work from any location of their choosing. They don’t have any other benefits other than being paid by the company.

What should I pay attention to when I take on employees?

  1. Ensure you set up payroll properly (paying for their social security tax etc.) and they get the right kind of benefits such as insurance, 401k etc.  
  2. Make sure the hiring process is fair and has no grounds for discrimination
  3. Train your managers properly so there are no improper behaviors or comments at the workplace
  4. If you need to terminate an employee, ensure that there are proper documentation to set proper objectives, adequate evaluation of the employee’s work and transparent communication why the employee is not meeting expectations

Can my employees sue me?  On what grounds?

Employees can sue employers for multiple reasons

  1. Compensation (if there is variance between different genders/ethnicities for the same line of work and level of experience
  2. Lack of certain benefits if the employer has reached to certain size (50+employees)
  3. Discrimination or harassment of the workplace
  4. Improper hiring process such as asking illegal questions about children or disability
  5. Improper firing such as retaliation and lack of objective standards and opportunities to improve
  6. For hourly employees, lack of clocking in and out processes and not providing breaks.

What should I do before I fire an employee?

First step is to have a properly documented employee handbook and detailed job descriptions describing expected behaviors, standards and expectations for performance.  Second, when an employee is not performing, have a properly documented process of communicating what areas need improvement and provide an opportunity to improve.  The process needs to be fair and objective, and be free of bias, harassment and discrimination.  Finally, when the employee is finally terminated, it’s good practice for the employer to present a document to sign to relieve all claims, obligations etc. in exchange of some kind of consideration, such as a severance package, extended benefits, etc.

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