What legal documents should I prepare for my new workers to sign?
We'll cover three of the most important documents your new employee should sign:
- Employment Contract (or Independent Contractor Agreement, depending on their classification)
- Non-Disclosure Agreement
- Employee Handbook
What is the difference between an Employment Contract and an Independent Contractor Agreement?
Before you make a hiring decision, you may first want to consider whether you're hiring an employee or independent contractor, as the legal and tax implications will differ. Improperly classifying an employee as an independent contractor can get you into legal trouble, so choose wisely and ask a lawyer if you're not sure.
Independent contractors generally include consultants, freelancers, and others who work independently, relatively speaking. They may work out of their own home and often perform work for more than one client, setting their own hours. Unlike employees, they are paid for their services without any taxes withheld, pay for their own work-related expenses, and are not protected by state or federal employment laws. If you're hiring an independent contractor, you may want to have them sign an Independent Contractor Agreement. This contract will outline the type of work they will perform, when it is due, if applicable, and the rate of pay.
If you're hiring an employee, you, as the employer, have much more control over their work product and hours, while they typically—but not necessarily—operate out of your company's workplace. You're responsible for covering any reasonable expenses associated with their day-to-day tasks and must abide by applicable employment laws. You also may provide certain benefits to employees that aren't available to independent contractors. Many employers have new employees sign an Employment Contract. While not required by law, this gives you an opportunity to spell out the terms of the employment relationship, policies for termination, information about benefits, and other details.
What is a Non-Disclosure Agreement?
Your employees probably have access to passwords, proprietary business processes, and other sensitive data. Whether you're hiring an independent contractor or an employee, a Non-Disclosure Agreement (NDA) can help you safeguard these assets. NDAs are legally enforceable contracts establishing confidentiality between the two parties: the owner and recipient of certain information.
The NDA will outline the types of information considered confidential, such as client lists, customer data, business insights, technical data, sales strategies, or anything else that isn't considered public knowledge or otherwise exempt. Keep in mind that the scope and enforceability of an NDA may vary according to state law. For instance, most states will not recognize NDAs that are overly broad or vague.
Do I need an Employee Handbook?
The Employee Handbook is a great way to provide detailed information about employee expectations, company culture and mission, rules of conduct, administrative processes, and any other policies you want your new employees to understand. It's meant to both welcome new employees and get them on the same page, essentially putting them "on notice" that they understand what's expected of them.
An Employee Handbook may rehash some of the same terms outlined in the Employment Contract, but typically provides more detail and, for instance, examples of inappropriate behavior. Getting a new employee's signature next to a statement that they have received the handbook and understand its contents also gives you greater legal protections in the event you have to reprimand or terminate that employee.
Whether you're hiring independent contractors or full-fledged employees, even the best-qualified individuals will benefit from a clear understanding of your expectations and objectives. By expressing these terms and expectations in legally enforceable documents that employees read and sign, you can better protect your business from damaging breaches or legal exposure. If you have additional legal questions or concerns, ask a lawyer.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
