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How to formalize employment for your first employee?

I am the first employee / staff for a lab in San Francisco, and given the quick-changing nature of companies at this stage, I am trying to figure out what is the best type of employment contract for us. The expectation is that the work will start part-time, to allow freedom for freelance and project gigs to pay the bills, and as the need and funding grows, the hourly commitment will grow.

Does it make sense to use a temporary employment contract, renegotiated monthly for the first few months? What success or failures have you had with contracts at this early stage? Any other feedback regarding the appropriate amount of formality at this fluid early stage?

13 Replies

jack abbott
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jack abbott Entrepreneur
Chairman and Partner at BlueBox and CEO Oak Creek Trail, LLC
Easiest option when just a few employees is a contract HR service. Sent from my iPhone
Lisa Pomerantz
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Lisa Pomerantz Entrepreneur
Business and Employment Attorney, Arbitrator, Mediator and Trainer
Your contract should confirm the current arrangement, and provide for mechanisms for the arrangement to evolve based on the parties needs and agreements. There should also be ways for the parties to make graceful exits if it does not work out. I strongly recommend including mediation and arbitration provisions to allow for cost-effective resolution of any disputes.
Joe Albano, PhD
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Joe Albano, PhD Advisor
Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.
Really depends on what you want to accomplish here. A payroll service will keep things like taxes and workers comp correctly. If there are any kind of benefits you are concerned about, the next step up might be an HR service. As for a "contract", you might just document your agreement in an email - including how you agree to resolve disputes. Remember that the default resolution mechanism for a contract is a lawsuit which would likely put the business out of business and leave you with a lovely judgement, suitable for framing.
Irwin Stein
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Irwin Stein Advisor
Very experienced (40 years) corporate,securities and real estate attorney.
You should contact an experienced attorney and have them draft it for you.You have specific needs and concerns. You probably want an independent contractor for a while with the option of making that person a full time employee, but that is rarely enforceable. Employees have rights, especially in California, and every employee can be a problem if for no other reason than not everyone sees the world as you see it. Hire an experienced employment attorney.
Joe Albano, PhD
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Joe Albano, PhD Advisor
Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.
Irwin - I understand your position and even agree with you. I am, however, saddened by the realization that one of the framing realities of bringing the first employee into an organization is "every employee can be a problem". It explains a lot.
Irwin Stein
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Irwin Stein Advisor
Very experienced (40 years) corporate,securities and real estate attorney.
Joe: The gentleman who asked the question is himself an employee. He does not say he is an owner so I assumed that he was not spending his own money. I probably employed over 100 people over the years; most were great; some were not. Courtrooms are full of disgruntled employees seeking redress for all kinds of slights, real and imagined. An owner who puts blood, sweat and tears into a business should want to be protected even if the need never arises. That is what good lawyers advise. I always strive to act like one. Hope for the best; plan for teh worst.
Joseph J. Vecchiolla
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Joseph J. Vecchiolla Entrepreneur • Advisor
Investor - Chairman - CEO
Matthew,

Others have touched on a number of issues. First, if you are the employee, it is your employers responsibility to present whatever the contract or employment terms shall be. I agree with Irwin that employment law is a specialty (at both the state and federal level) and sound legal counsel is well worth the investment. There are many issues to cover, relative to compensation, residual benefit (if any), confidentiality, non compete and so on. In my view, these matters can seem daunting, but a good attorney will likely be invaluable.
Ema Chuku
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Ema Chuku Entrepreneur
Designer. Product Developer. Founder @ NuPad
An employee with a monthly renegotiation activities is not an employee. I would classified that as independent contractor.. As an employer that's already a burden of work if I have to renegotiate every month with an employee. Rather, a period of time like 3 months, 6-months, is more ideal..

That said, you both are best with independent contractor-relationship until both parties are comfortable.


Andrea Raimondi
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Andrea Raimondi Entrepreneur
Computer Software Consultant and Contractor
I don't see what's wrong with using a freelance contract with an option for more hours. So, something like: "The current job is for $A hours paid $B, with an option to add $C hours at $D". Of course, there should also be a provison saying something like "if the number of hours increases stably, then you get $A+$C hours for $B+($C/2)" or something like this.

This protects the employee (if you work more time than expected, then you may have to refuse new gigs, so you need some form of insurance for the time lost) and the employer (one thing is if you have a spike, another is if the amount of hours increases stably).
Matthew Eshed
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Matthew Eshed Entrepreneur
Engineering and Operations Projects Leader
Thank you all for the insightful responses. It's not entirely clear if it's an employee-employer, founder-cofounder, or contractor relationship, but I want to dive in asap so we can get it to the point of more clarity. It seems like the best course of action at this stage is to start with an independent contractor agreement, then once work is in motion and we have secured some funding, enlist legal assistance to help us scale in a way that protects all parties involved.
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