There are subtle nuances between an independent contractor and a part-time employee, largely centering around the issue of “control.” How much control do you have over how the work gets done, when and by whom? Getting on the wrong side of that balance could cost thousands of dollars in unpaid employment taxes, plus interest and penalties.

Bill Bischoff’s article in the Wall Street Journal online sets out some handy distinctions, in addition to suggesting you look at IRS Form SS-8, which lets you know the factors the IRS considers in making its determination.  For more on the issue of control, check out my article, “Walking The Employee-Independent Contractor Tightrope,” available at GreatBusinessLawTips.com.

A.: Frustratingly, there isn’t a hard-and-fast rule on how long these types of agreements are valid.  In some cases, courts have set outer limits on permissible time frames, but the reasonableness can depend on the length of employment with the company, the level of employment with the company and the geographic scope of the restriction (for example, are you prohibited from working anywhere in the U.S.? Or for a competing company within a 10-mile radius?).

Courts don’t like to see people prevented from supporting themselves, so they construe non-competition provisions (as in “You can’t work for a competing company”) more narrowly.  But as to soliciting customers, they tend to uphold those, for they are the lifeblood of the business. If the agreement says “you may not solicit any present or past customers,” then don’t do it.  A non-solicitation provision is not the same as a non-competition provision.  If the agreement doesn’t say anything about soliciting customers, the non-competition generally won’t be expanded to include customers.  However, sometimes a provision may be called “non-competition” (in the heading), but cover a range of issues, including the non-solicitation of clients.  That’s where consulting with a local employment attorney will be beneficial so that you can get a clear read on the language and the conduct it’s prohibiting.

As to the issue of leaving the company and then coming back, the non-competition provision is moot, as you’ve returned to the same company.  The company can’t be in competition with itself.  Unless the company has made non-competition an aspect of company policy (e.g., through an employment manual), you generally “start fresh” when you start (or restart) an employment relationship.  But again, as different states can vary on the issue (and the law changes frequently), check with an employment attorney who is familiar with this area and the recent court decisions on the subject.

Even worse is when something written about you/your company comes back to slap you in the face like a coconut cream pie.

In his post, “Should Personal Blogs Be Allowed and Permitted by Employers,” Kirk Noel Narrows outlines the essential conundrum in letting employees blog:  You don’t want to be known as the self-preservationist ogre who stifled self-expression, but you must protect your company from damaging employee blogs.

He goes on to say:
Would it not be smarter from the very start to have clear policy procedures in place , including a signed non-disclosure document, clearly listing rules, proceedings and a time line after leaving the employer? Large corporations do this as a simple matter of routine. Should not this be your established pattern as well ?

I couldn’t agree more.  Far easier to set the boundaries at the beginning with a new hire than try to change horses midstream.

In short, beginning October 26, 2009, New York employers must inform newly hired employees in writing, at the time of hiring, of their pay rate, regular payday and, if eligible for overtime, regular hourly rate and overtime rate.  In addition, the employer must obtain a written acknowledgement from employees that they received this notice.

The requirement to inform employees about pay rates and paydays is not new.  But the requirement to provide this information in writing and obtain an acknowledgement is.

This is not an issue that necessarily gets front-page coverage, so how do you find out information like this?  Will you become your own full-time researcher?  (Answer: Unless you want your business to fold, it’s probably not a good idea).  Employment laws change regularly–with the stimulus package and the federal government’s attempts to assist the U.S. work force, perhaps even more so.  A good way to stay on top of all this vital information (which can ensnare you in its net SO easily) is to hire someone who knows it and handles it on a daily basis.  In other words, an employment attorney.  You can learn more about how to choose the right one for your business with my program, How to Choose and Use Attorneys, available through GreatBusinessLawResources.com.

There are ways, though, of making the situation a smidge less dread-inspiring.  Have a look at my article, “How to Say Goodbye to an Employee” on the E-Myth Blog to learn the top five steps to navigating this successfully.

You’ve known the nightmares . . . which may have been part of what catapulted you into entrepreneurship.  But now you’re the boss, and you’re finding out that managing people is often like herding cats.

Awkward work situations seem to follow us around–perhaps they’re part of the human condition.  But how can you manage them?  In Entrepreneur magazine, Chris Pentilla outlines 10 scenarios that can keep you up at night, ranging from the “oh, no you di’int (a la Rosie Perez) to the nail-biting, including:

• The office romance
• TMI: Did I really need to know about your STD test?
• The vengeful, laid-off employee
• The annoying wedding planner
• The drunk on the job
• The secret thief (where did those legal pads go?)

Q: I want to lessen my payroll by finding ways to lower the amount of overtime I pay people. The question has come up about converting someone from an hourly employee to a yearly salaried one. It’s my understanding that there are strict limits on who can be a salaried/exempt employee vs. someone who works on an hourly basis. I’d prefer to pay someone more via a salary, but less than it would cost me to pay overtime. 

A: The exempt/non-exempt distinction is not one you want to play around with.  Violations of wage and hour laws are one of the top reasons employers get sued–and the penalties can be stiff. 

The issue is not whether the employee will be paid a salary (instead of hourly) for work done–it’s the nature of the work the employee is doing that affects the pay structure. The U.S. Department of Labor specifically designates certain classes of workers as exempt, including executives, administrative personnel, outside salespeople, highly skilled computer-related employees and licensed professionals, such as doctors, lawyers, architects, engineers and certified public accountants, among others. In addition, managers who hire and fire employees and who spend less than half their time performing the same duties as their employees are typically also exempt employees. In general, the more responsibility and independence or discretion an employee has, the more likely the employee is to be considered exempt.

If the concern is slashing payroll/overtime costs, you may be better served by looking into outsourcing certain functions (e.g., for janitorial services) by hiring a separate company, rather than trying to reclassify an employee and run the risk of violating the Fair Labor Standards Act.

But some folks are “old-school,” or don’t want to spend the money.  As a result, their employees are considered working “at-will” and free to leave at any time.  From the perspective of the soon-to-be entrepreneur, can you take your employer’s clients?

Q:  We’ve been working for a company for more than a decade and have finally reached the point where we want to set up our own shop in the same industry. Most of the client relationships are with us, as the owner is very hands-off and many people don’t like him. We have no employment contracts. One of our concerns was transferring clients, specifically when is the earliest we could advisably do that? We’ve been moving forward with our plans, but we’ve realized that it would be far more practical for ourselves and for the clients, who otherwise could feel at sea, to be able to speak with them in advance.  How can we do so?

A:  While I appreciate your concerns about leaving clients “at sea,” employees do have a duty of loyalty to their employers in that you should not solicit clients, take files, etc., while still on the job (you can take your contact database), nor should you use “company property” (company phones, computers or make the announcement at a client  meeting or during your workday).

Best (safest) way to handle it is to get your ducks in a row, leave Friday afternoon, and contact everyone after you’ve left.  Do not use your work e-mail for these kinds of conversations. The longer the time delay between leaving your job and contacting the clients, the stronger your defense to a lawsuit that you took clients on company time.

Another way would be to contact clients on your own time (again, from your homes and not during workdays or hours) to let clients know you’re leaving and that you’ll be back in touch in a week or so to let them know where you’ve landed.  Two problems with that approach:  1. The client may want more information than it’s appropriate to give at that time . . . so if you’re concerned about their being “at sea,” that could leave them even more worried about how and when their needs will be handled; 2. There is a meaningful risk that if any of the clients lets the owner know (even inadvertently) that you’re leaving before you tell him, this could be bad for you and give the owner something to hang his hat on in litigation–whether or not you have an employment agreement).

A few more things to consider:

• Will your clients really be “at sea”–are they that fragile?–if they are notified after you leave?  It’s really so much cleaner if you can wait.

• Check the client agreements to make sure that there are no non-solicitation or exclusivity provisions in their contracts–for example, that if they are solicited by another agency (or by former employees of the agency), they’ll give the owner prior notice.

• Depending on the clients’ feelings of loyalty to the owner–if you tell them before you tell him, they might be put off in the sense of your not acting totally aboveboard and with integrity.  More of a character issue and their feeling of trust working with you going forward than a legal issue.

For those of you near Brooklyn, N.Y., on July 15, stop by the Brooklyn Creative League, where I’ll be talking about everything you need to know about business law in 90 minutes.  (Well, not quite . . . but close!)  In this entertaining and lively session, I’ll provide entrepreneurs with an overview of the most common legal issues they will face as they start and build their businesses.  I’ll touch on:

• How to choose the right form of business
• Working with business partners
• What to look out for in your commercial leases
• How clear contracts make for happy clients/customers
• Intellectual property: what to protect and how to protect it
• Choosing the right attorney/advisory team

RSVP: Contact the Brooklyn Creative League at info@BrooklynCreativeLeague.com or (718) 576-2104.

Date:  Wednesday, July 15, 2009
Time:  9:30 to 11 a.m.
Location: Brooklyn Creative League, 540 President Street (between 3rd and 4th avenues)
(Take N/R Subway to Union Street)
Price:  Free for members; $10 non-members

Here’s a short list of what you can expect to pay/file/provide:

1. Withhold Federal income tax from the employee’s salary.
2. Withhold Social Security and Medicare taxes (know as FICA–Federal Insurance Contributions Act).
3. Pay an amount equal to 1 + 2, above.
4. Pay federal unemployment insurance (from the Federal Unemployment Tax Act/FUTA)
5. Pay state unemployment insurance.
6. Pay state disability insurance.

Optional, but sometimes provided:

1. Health insurance coverage (medical, dental, vision, prescription)
2. Paid vacation days
3. Paid sick days
4. Paid personal days
5. Fringe benefits

Then you have all of the personnel and “is the employee a fit?” issues to consider when actually making that hire. For more information on that topic, have a look at the article I wrote recently for The EMyth Insider, “How to Hire Employees Safely.” Don’t forget to click on the link to get your free copy of my special report, Top 10 Reasons Employees Get Fired.