Question:
Hello Ken,
Can you take a few minutes and elaborate on your employee contracts?
I use your basic sales/ monitoring/ service contracts and am very pleased
with them.
I am particularly interested in the difference between hiring a sub
contractor or hiring an employee.
How does the contract spell out some of the major points, salary,
licensing, training, experience etc? I would like to pay him on a "per
installation" basis.
Thanks for your insight.
J.
Answer:
You need to be careful about the real status of your employee or your
subcontractor. The first pit fall is Workers Compensation Insurance. If a
subcontractor is really your employee then you must cover that employee
under your workers comp insurance. When you get your annual audit from the
carrier it will check your subcontractors and if it determines that your
subcontractor is really your employee, you will be hit with the additional
premium. Employees are also usually entitled to other benefits, like
unemployment insurance, disability insurance and whatever you may be
offering your regular employees. They are entitled to the employer
contribution for social security. If your subcontractor wakes up and
realizes he is really your employee, he can demand all of the benefits you
should have covered him for, and didn't. If he is hurt on the job, and
doesn't have his own workers comp insurance [and he won't] you may very
well be held responsible for all the benefits workers comp might have
provided.
Bottom line is an employee can't be treated as a subcontractor. That
doesn't mean that every subcontractor must be treated as an employee. But
you can't call an apple an orange and expect to make orange juice out of
it.
Subcontractors are truly independent of you and your business. Even if they
derive nearly all, maybe all, of their business from you, they can still be
subcontractors. What are the characteristics of a subcontractor? Well for
one thing he won't consider you his boss. He will have a contract for each
job. He will carry his own insurance, pay his own men, have is own bank
account and credit lines at suppliers. He will file tax returns and conduct
himself as a real business. He will have a business, preferably a
corporation.
What a real subcontractor won't be, is a disguised employee, taking orders
from you, when to work, when to vacation, no office, no phone, no
insurance, probably no bank account. He cashes your check each week, and
it's the same amount each week. You thought you'd be slick until he gets
hurt on the job and claims he is nothing but an employee without the
benefits you are required by statute to provide.
Contracts for employees are completely different than the contracts you use
for subcontractors. Both are standard forms offered on my web site
[www.alarmcontracts.com] and neither looks at all like the other; they are
not interchangeable.
The Employee contract covers the employment relationship, setting forth the
position, salary, benefits, terms of employment, such as vacation, etc. The
employment contract contains restrictive covenants that apply both during
the employment and after the employment terminates. The employee is
prohibited from other employment while working for you and is prohibited
from soliciting or servicing your subscribers or other employees after his
employment terminates.
The Subcontractor agreement comes in two forms, depending on whether you
are the general contractor who is hiring the subcontractor, or the
subcontractor.
This agreement is clear that it is between two business entities. It is
designed for a single job. It gives the option of the subcontractor
providing only labor, only material, or both labor and material. It
provides for the respective obligations of the general and subcontractor.
It requires both contracting parties to be licensed and insured. It
contains some restrictive provisions, such as non solicitation of the
subscriber and no raiding of personnel.
The principal difference between the two subcontractor forms is that when I
provide it to the general contractor it provides a paid when paid clause,
meaning the subcontractor gets paid when the general contractor gets paid.
Note that this provision is not enforceable in every jurisdiction, but it's
in the contract nevertheless.
If I am providing the subcontract to a subcontractor then the contract
provides that the subcontractor gets paid when the work is completed. The
forms are otherwise rather similar.
If you have employees you would be wise to have them sign employment
contracts. My standard form is easy to fill out.
If you hire subcontractors or you do subcontracting work, you should use
the subcontracting contracts. If you are engaged to work on numerous jobs,
you can have one contract that covers them all and minor changes to the
form contract would be easy to make.
The primary benefit to using contracts is to avoid misunderstandings that
lead to disputes and litigation. Trust me, I make lots more money when my
clients don't use the contracts and get into a dispute than I do selling
contracts. Don't be penny wise and pound foolish, use contracts to define
your business relationships.