INSUBCONTINENT EXCLUSIVE:
Your startup will not succeed unless you, the founder, build an exceptional team
Great teams are built on top of great culture
Yet any venture-backed startup founder will tell you, myself included, that developing a positive corporate culture is more art than
science, requiring constant and creative recalibration as your company grows
What then does this have to do with employment lawFirst, building an exceptional team means hiring great people; whether that involves W-9s
for consultants, I-9s for employees, lengthy H-1B visa applications, or a new employee handbook, you need to hire the right people in the
Second, one bad employment-related legal dispute can have ripple effects throughout an organization, undermining employee morale and
executive credibility in one fell swoop, with palpable culture fallout.Fortunately, when working to promote healthy company culture,
founders can look to employment law for some preventive medicine
In fact, transparency through written policies, clearly communicated in advance and followed in practice, can help create the trust and
accountability which are foundational to positive company culture
Moreover, in the event employment disputes do arise, well-drafted employment policies actually provide valuable guidance through difficult
to navigate situations, while limiting downside risks to the company, as well.This article, the fourth in Extra Crunch’s exclusive
five-part “Startup Law A to Z” series, follows previous articles on customer contracts, intellectual property (IP) and corporate
This series is calculated to provide founders the information needed to assess legal risks in the areas common to most startups.After
reading this article, or other “Startup Law A to Z” articles, should you identify legal risks facing your startup, Extra Crunch
For example, the Verified Experts of Extra Crunch include some of the most experienced and skilled startup lawyers in practice today
So use these resources to identify attorneys focused on serving companies at your stage and then reach out for further guidance in the
particular issues at hand.Employee vs
independent contractor classificationPayroll Taxes and Payroll ProvidersFederal Classification: 21-Part TestState Classification: Various
tests, e.g., Dynamex in CaliforniaIntentional vs
Unintentional Misclassification and PenaltiesMinimum wage and hour lawsApplication to foundersFederal Fair Labor Standards Act (FLSA)State
LawsMeal and rest breaks, vacation payFederal Fair Labor Standards Act (FLSA)State LawsDeferred compensationRule 409AFoundersEmployeesSexual
harassment, discrimination, and related claimsFederal:
Civil Rights Act of 1964Age Discrimination in Employment Act of 1967 (ADEA)Americans
with Disabilities Act of 1990 (ADA)Equal Pay Act of 1963Genetic Information Nondiscrimination Act of 2008State LawsEmployee
HandbookDocumentation and InvestigationWork authorization / immigrationForm I-9 (Employees) and W-9 (Independent Contractors)For Temporary
Workers:
Employee Visas:
Students:
F-1 with OPT STEM ExtensionOther Visas:
EB-5E Visas (E-1, E-2, E3) One of the biggest employment law
issues that startups get wrong, often willingly, is “employee” versus “independent contractor” classification
For employees, a startup must withhold and pay federal, state, and local income taxes, state disability, and payments under the Federal
Unemployment Tax Act and Federal Insurance Contribution Act (i.e. Social Security and Medicare), not to mention contributions for federal
and state unemployment and workers compensation insurance
Given this complexity, startups should absolutely hire a payroll provider to help manage the process, such as ADP, Gusto, Paychex or
Quickbooks.Of course, all of this gets expensive
Instead, far too many early-stage startups simply hire “independent contractors” to avoid everything mentioned above, often
misclassifying these workers in the process, whether under federal law, state law, or both.
