Employment law and compliance for B2B SaaS founders — contractor vs employee classification, offer letters, IP assignment (PIIA), at-will employment, equity documentation, employee handbooks, harassment policies, termination procedures, and multi-state / international hiring compliance. Use when hiring first employees, classifying workers, building HR infrastructure, or expanding to new states/countries. Triggers on: "employment law", "contractor vs employee", "offer letter", "employee handbook", "PIIA", "hiring compliance", "termination".
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Employment law and compliance for B2B SaaS founders — contractor vs employee classification, offer letters, IP assignment (PIIA), at-will employment, equity documentation, employee handbooks, harassment policies, termination procedures, and multi-state / international hiring compliance. Use when hiring first employees, classifying workers, building HR infrastructure, or expanding to new states/countries. Triggers on: "employment law", "contractor vs employee", "offer letter", "employee handbook", "PIIA", "hiring compliance", "termination".
license
MIT
compatibility
Claude Code, Jesse, Codex, Hermes, Windsurf, OpenCode, Gemini CLI, Copilot, Zed, VS Code, Goose
Hiring is a legal minefield. Misclassify an employee as a contractor and you
owe back taxes, penalties, and benefits — plus the state of California wants
to have a word. Forget the IP assignment and a departing employee takes your
code with them. Terminate someone without documentation and you're paying
COBRA for 18 months plus a settlement. The mistake: thinking "we're too small
for HR." You need compliance from employee #1. This skill covers everything
from classification to termination.
Trigger phrases: "contractor vs employee", "employee classification", "offer
letter template", "employee handbook", "PIIA agreement", "IP assignment for
employees", "termination procedure", "multi-state hiring", "international
employee compliance", "employment law for startups"
Step-by-Step Process
Phase 1: Contractor vs Employee (Get This Right)
The most expensive mistake in startup hiring is misclassification.
IRS 20-Factor Test (simplified):
Factor
Employee
Contractor
Behavioral Control
You control how, when, and where they work
They control their work methods
Financial Control
You provide equipment, reimburse expenses, pay salary
They invest in their own equipment, can profit/lose
Relationship
Indefinite, key to your business, benefits provided
Project-based, multiple clients, no benefits
Exclusivity
Works only for you
Works for multiple clients
California ABC Test (stricter than IRS):
A) Worker is free from control and direction
B) Worker performs work outside your usual business
C) Worker is customarily engaged in their own independent trade
Rule of thumb: If they work full-time for you, use your equipment, have
set hours, and you control what they do day-to-day = EMPLOYEE. If they work
on a specific project, set their own hours, use their own equipment, and have
other clients = contractor. When in doubt: EMPLOYEE. The penalties for
misclassification are severe.
Consequences of misclassification:
Back taxes (both halves of FICA — you'd owe the employer AND employee share)
Penalties: $50-5,000 per misclassified worker
Benefits owed: health insurance, retirement, stock options
Overtime wages if applicable
California: additional PAGA penalties ($100-200 per employee per pay period)
Class action risk
When you can use contractors:
Specific project with defined deliverables and end date
Worker has their own business (LLC, other clients, website)
Worker sets their own schedule and methods
Worker invoices you (not on your payroll)
GTM-specific — SDR/BDR classification: Full-time SDRs on your sequencer, your
CRM, manager-assigned lists, and team quotas are employees (W-2) in virtually
all US scenarios. "1099 SDR" models fail ABC test in California and invite federal
misclassification penalties. Commission plan documentation → gtm-role-descriptions
comp templates. HR onboarding system → gtm-role-descriptions/references/hr-gtm-playbook.md.
Escalate borderline cases to qualified counsel — this skill is not legal advice.
Phase 2: Hiring Employees
Before employee #1:
Register for EIN (if not done at incorporation)
Register with state tax agency (unemployment insurance, withholding)
Get Workers Compensation insurance (required in most states)
Set up payroll (Gusto, Rippling, Justworks — don't DIY payroll)
Post required labor law posters (physical or digital — Gusto handles this)
I-9 (employment eligibility verification) within 3 days of start
W-4 (tax withholding)
Direct deposit form
Emergency contact
Benefits enrollment
Employee handbook acknowledgment
Phase 3: Employee Handbook
Every company needs one — even at 2 employees. It protects you legally,
sets expectations, and documents policies that courts and regulators will
ask about.
Essential handbook sections:
Welcome and Company Overview — Mission, values, culture
Employment At-Will — Either party can terminate at any time, with
or without cause (must be in bold/all caps)
All workers properly classified (employee vs contractor)
PIIAs signed by ALL employees and contractors (no exceptions)
Employee handbook published and acknowledged by all employees
Harassment policy includes reporting procedure and non-retaliation
Workers comp insurance in place for all states with employees
Payroll tax registrations complete for all states with employees
Employment posters posted (physical or digital) in all states
I-9 forms complete for all employees
Termination procedure documented
Quality Check
Before delivering, verify:
Output matches the user's stated request
Named frameworks or sources are reflected in the recommendation
The deliverable is specific enough for an agent to execute
Any assumptions, risks, or dependencies are explicit
No unsupported claims, invented facts, or private/internal references are included
Common Pitfalls
Misclassifying employees as contractors. "They're a contractor" but
they work 40 hours/week, use your laptop, have a company email, and
report to a manager. If it walks like an employee and quacks like an
employee... Fix: Use the IRS 20-factor test. When in doubt, classify
as employee and use Gusto/Justworks.
No IP assignment from contractors. You pay a contractor $50K to build
your product. They own the code. You don't. Fix: Every contractor signs
a PIIA or work-for-hire agreement BEFORE starting work.
Firing without documentation. "It wasn't working out" with no paper
trail = lawsuit risk. Fix: Document performance issues. Give feedback
in writing. Follow progressive discipline. The paper trail is your
defense.
Ignoring state-specific laws. "We're based in Texas, but we hired a
remote employee in California." California has completely different
overtime rules, sick leave requirements, and final paycheck timing.
Fix: Your PEO (Gusto/Rippling) handles this — but you need to tell them
about every hire in every state.
No handbook for employee #1. "We're only 3 people — we don't need
a handbook." You need it BEFORE there's a problem. The handbook is
evidence that you communicated expectations and policies. Fix: SixFifty
generates a handbook in under an hour.
⚠️ Disclaimer
This skill provides general informational guidance based on publicly available frameworks and operator experience. It is NOT legal advice, accounting advice, tax advice, financial advice, insurance advice, or professional services advice.
Consult qualified professionals for your specific situation — attorneys for legal/equity matters, CPAs for tax and accounting, licensed brokers for insurance, and certified security assessors for compliance. This skill does not create a professional-client relationship. Use it as a starting point for research and preparation.
Execution Artifacts
references/framework-notes.md — Named frameworks and reference tables
templates/output-template.md — Deliverable shell for agent output
