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Small business owners in the United States at some point will encounter a litigation threat. We live in a litigious society; thus, the threat of litigation should be viewed as a natural offshoot to doing business. Small businesses can face litigation risk from a number of areas ranging from employment law claims, personal injury suits, contract disputes making employment agreements for small businesses an important factor.

Being caught in litigation is an expensive time-consuming and overall bad for business. However, small business owners can take a few preventative measures to stop to their business from a lawsuit. One of these steps involves creating employee agreements that can mitigate some of these potential issues.

Document Everything

Make a record of transactions and agreements in writing. This not only helps protect the small business owner if proof of a transaction would need to be produced to avoid a dispute, but it also makes certain that all parties, such as employees or service providers understand their rights and obligations such as making sure all agreements are put in writing and clearly understood by all parties involved.

Create an Employee Agreement

An employment agreement for small businesses makes employee performance expectations clear and also provides a clear explanation of the employee’s rights in the case of a conflict. Putting this information in an agreement can help avoid potential misunderstandings with employees or former employees. Common issues included in an employment agreement are policies concerning: termination, workplace conduct, maternity leave, sick leave, sexual harassment, vacation, among others. The agreement should be signed and dated by all parties involved so that there is a clear record of this information being distributed and understood.

 Understand the Difference Between an Independent Contractor and Employee

There are a number of rules employer must be aware of when staffing their business. The first involves the distinction between employee and independent contractor. If a worker is an employee, you must take out necessary taxes and follow all guidelines required by State and Federal laws. An independent contractor is only being paid for his or her services on a temporary basis and does not have a permanent connection to your business; thus, you are not required to withhold and pay taxes for an independent contractor. Failing to understand the difference between an employee and an independent contractor can result in penalties imposed on your business by State and Federal tax authorities.

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