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The Employment Relationship, Employment Agreements
and ESOPS
In general, employees are employees at will unless a specific contract
is signed. Sometimes, employers and employees are surprised to learn that
an employer can impose any number of arbitrary, thoughtless, unproductive,
even demeaning demands on an employee and that an employer can fire an
employee for almost any reason or no reason. The only restrictions on
an employer are from making decisions based on race, creed, color, sex,
and age as well as restrictions from wage and hour laws and safety laws
and a few others. The law assumes that market forces will motivate an
employer to act reasonably in most instances and so allows for wide latitude
in freedom of contract in the employment area. Therefore, although some
of the considerations in this section sound harsh, they are tempered by
the personal nature of employment services. For example, although it may
be financially best for an employer to have independent contractors rather
than employees, to improve morale, productivity and to reduce turnover,
most workers are employees rather than independent contractors.
A significant issue in the employment area is whether the employee is
an employee or an independent contractor. If an employee is an employee,
the employer has many regulatory requirements to meet as well as sources
of potential liability including:
- Federal income tax withholding
- Employee share of FICA
- State income tax withholding, if any
- Local income tax withholding, if any
- State unemployment compensation, if any
- Disability insurance, if any
- Federal unemployment tax
- State unemployment tax
- Liability for wrongdoing and damage done by an employee.
If the employee is an independent contractor, then many of these employment
burdens are removed from the employer. However, it is not always clear
whether an employee is an independent contractor. To determine whether
someone is an independent contractor, courts look at several factors.
Also, someone may be an independent contractor for one of the above liabilities
and not for another. For a comprehensive statement of factors considered
in making such a determination, consult the 20 factors contained in the
IRS's Revenue Ruling 87-41. The factors include such things as instruction,
training, hiring supervising and paying assistants, oral or written reports,
payment by hour, week, month, payment of business and travel expenses.
ESOP
Employment Agreements
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