After three years in business, I had my first experience with the act of betrayal from a former independent contractor. She quit with one days’ notice and stole three of my clients. Luckily the IC Agreement and Confidentiality Agreement will ensure I get compensated for her theft of my clients in legal proceedings. However, many small businesses are unaware of how to protect themselves or just have decided to bypass certain steps. You must ensure you take the steps to protect your hard-earned efforts to acquire regular customers. When you start a home services business, such as maid services or pet services, the first step is to get licensed, insured, and then bonded. This gives credibility to your business and also protects you in the case of a dishonest employee or accident while conducting work for a client. Bonding is relatively inexpensive, as is acquiring a business license, but insurance can add up with the volume of business and number of employees or independent contractors you have.
One of the most important decisions to make is whether you want to hire people as employees or independent contractors. When you hire employees, you as an employer are responsible for all payroll taxes, social security, medicare, and usually need to offer health insurance. By going with an independent contractor, your headache figuring out taxes and payroll lessens. Independent contractors are responsible for keeping track of their income and paying quarterly taxes on the money they earned. As an employer, you will mail them a 1099 instead of a W-2 at the end of the tax year. Small business ideas can easily go with a cheapest LLC formation.
LLC Documents
Regardless if you go with an employee or independent contractor, you need to assume at one point or another the person you hire will betray your trust. Ensure you run a background investigation on them before you hire them so you can be rest assured they do not have a criminal record or anything negative that could affect your business in the long run. Then before you pass on any work to them, you need to have them sign a contract that lays out all the terms and conditions for working for your company.
Nine out of ten companies with home services hire independent contractors so we will discuss the necessary contractual obligations that need to be set forth for an independent contractor. First and foremost is an Independent Contractor (IC) Agreement. This will lay out how and when an IC will be paid. Go over proper protocol of signing up a new client, security procedures, and anything else that needs to be upheld. An important numeration is that you as an employer is not obligated to pay for services rendered if the client refuses to pay for service. This is important because if an IC doesn’t perform the job properly, you are not forced to pay them for that job if the client does not want to pay for the service received.
Single Member ll Operating Agreement
Separate agreements to sign are a Confidentiality Agreement and a Non-Compete Clause. Some businesses put the Non-Compete Clause in with either the IC Agreement or Confidentiality Agreement, while others make up a separate document. The Confidentiality Agreement is an agreement in which the IC agrees not to disclose any clients’ personal information to anyone (especially competitors), solicit clients for other services, and agree to uphold their position of trust for the duration of their employment. It protects the business marketing materials and practices as well. Ensure your IC or employee signs this agreement so you would have grounds to sue if your trust in them is breached. There are few cheapest LLC states that help taking a good start.
Lastly, we come to the Non-Compete Clause, which is the most important document that you can create. This states the person you employ can not solicit your clients to perform services for them on an independent level or with another company. Otherwise there is nothing stopping an employee by offering to complete the same job for clients for less money, and the clients jumping ship. Make sure the wording stipulates that the IC can not complete any work for that client outside of the company while employed with the company and after termination. Decide what the set time period should be laid forth, which is usually two years. This puts in certain terms how long a former IC should cease communication with the client.
Sample LLC Operating Agreement
When you hire people to work for you, be sure to go over the contracts in person and explain it thoroughly so everyone is on the same page. Some ICs might try to pull one over on you and find a loophole, such as providing services to a client for free. Ensure you are covered in this event as even though that is more likely a fib, the point is that the IC stole a client that would have brought you money. This is a loss of income that you will need to show to the courts should you decide to proceed legally against a former IC.
Having an anonymous LLC ownership is good but losing clients is never any fun. Clients do not know of the agreement signed with an IC so will more than likely jump at the chance to save some money. Be sure to remain on a personal, friendly basis with the clients while they go through your company, and try to keep it intact if they leave your company for whatever reason. If you remain professional and offer to assist them in the future, you might just receive a call from them. As many people have had to tell me this week, you have to keep your head about you so you don’t cause any negative impressions on your business through the frustration of the betrayal of an employee. Let the courts handle it and the betrayer will get what’s coming to them! If you don’t proceed legally, trust that karma will come back to the person who betrays your trust and confidence. More information about operating agreements is on this site.