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1. Business Law & Order: Employment I
February 18, 2013
© Ann Arbor SPARK

2. EMPLOYMENT BASICS I
GETTING READY TO HIRE THAT FIRST WORKER
By: Mark V. Heusel
mheusel@dickinsonwright.com
www.dickinsonwright.com

3. WE NEED HELP, BUT . . . .
GERONIMO

4. Now what?
Getting Started: The 4 Questions You Must Ask
1. What is your objective?
 hiring workers
 hiring/retaining key employees
 incentivizing desired behavior
 pacifying investors

5. The Questions You Must Ask
2. What are you willing to give up?
 equity
 control
 appearance
 cash flow
 profits

6. The Questions You Must Ask
3. What is your stage of development?
 one size doesn't fit all
 ask yourself:
 how many people?
 who needs what?
 how mature is our widget?
 do we have cash flow?
 do we have investors or other financial backing?
 do we need to be incorporated?

7. The questions you must ask
4. Where is the industry?
Attracting talent or staying motivated requires creativity
You've heard about:
Salary
Bonuses
Stock Options

8. But, Have you heard about their cousins?
 SARs
 Phantom Plans
 Performance Awards
 Restricted Stock Awards Stock Purchase Plans
 Non-compensatory Benefits

9. APPLE COMPUTER, INC.
2003 Employee Stock Option Plan
(April 24, 2003)
1. Purposes of the Plan. The purposes of this Stock Plan are:
• to attract and retain the best available personnel
• to provide additional incentive to Employees and the Chairman;
and
• to promote the success of the Company’s business.
Options granted under the Plan may be Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options,
as determined by the Administrator at the time of grant. Stock
appreciation rights (“SARs”) may be granted under the Plan in
connection with Options or independently of Options. Stock Purchase
Rights may also be granted under the Plan.

10. TRADITIONAL FORMS OF COMPENSATION
A. WAGES
 Exempt (Salary) v. Non-Exempt (hourly)
minimum wage
overtime
pay periods
deductions
withholdings
(FICA, FUTA, Social Security)
Commissions

11. TRADITIONS FORMS OF COMPENSATION
B. BENEFITS
 Fringe benefits:
 insurance (more than just health)
 bonuses, premiums, incentives
 paid time off

12. Other non-compensatory benefits
 flexible schedules/hours
 telecommuting
 amenities at work (dry cleaning, meal preparation)
 (bike storage, food, showers, services)
 car allowances
 life and disability insurance
 health club memberships
 tuition reimbursement
 job share

13. TRADITIONAL FORMS OF COMPENSATION
C. How to get started
1. Planning
 job description
 terms of employment
 interviewing process (do u know what to ask?)
2. Payroll Taxes
 Income tax withholding (fed, MI, local)
 Federal Social Security Tax (FICA)
 Federal Unemploment Tax Act (FUTA)
 Michigan Unemployment Tax

14. TRADITIONAL FORMS OF COMPENSATION
C. How to get started
1. Forms
 Withholding Exemption Certificate (W-4) and MI-W4
 Quarterly Reporting to IRS on wages
 Form 518 (App for Registration) – MI Dept of Treasury
 Employer Identification Number (EIN)
 Register with UIA as contributing employer
 Obtain workers compensation insurance
 Be aware of MIOSHA standards

15. Helpful Resources

16. HELPFUL RESOURCES

17. What about an Independent Contractor?
Employee vs. Independent Contractor
 Control  Flexibility
 Loyalty from Eee  Less administration
 Commitment (time)  No payroll taxes
 Worker appeal  No benefits
 Protection of your assets  Avoid workers comp,
(trade-off) unemployment, and OT
 Less legal exposure
 Lower overhead

18. The IRS’s Common Law Rule
Evidence of the degree of control and independence
1) Behavioral control:
instructions given to the worker. How, when, where to work?
training is also important.
1) Financial control:
 extent of worker’s unreimbursed business expenses
 extent of worker’s investment
 extent that worker provides services to others
 how the worker is paid
 extent worker can realize profit/loss

19. The IRS’s common law rule
3) Type of relationship:
 how do the parties describe their relationship in writing
 does the worker receive employee-type benefits
 the permanency of the relationship
 extent to which services performed by the worker are a key aspect of the
regular business of the company.

20. misclassification hazards
payment of Eee’s worker’s comp
taxes sick leave/time off
IRS penalties/interest medical insurance
wage/hour penalties pension/401K
unpaid overtime
back benefits
paid vacation

21. Deferred compensation
Qualified vs. Non-Qualified
NQDC plan: Any elective or nonelective plan, agreement or
arrangement (written or unwritten) to pay
compensation in the future
E.g., Phantom Stock
*NQDC's don't afford the tax benefits associated with qualified
plans. E.g., 401K

22. Deferred compensation
4 categories of NQDC plans
1) Salary reduction arrangements: deferring receipt of salary
2) Bonus deferral plans: deferring receipt of bonuses
3) Top-Hat plans: highly compensated retirement plans
4) Excess benefit plans: Benefits to employees whose limited
under the qualified plan

23. Deferred compensation
Funded vs. Unfunded
- Unfunded: Only the mere promise to
pay in the future
* Promise is not secured
* Income tax deferral: Amounts cannot
be set aside from the employer's creditors for the exclusive
benefit of the employee
* Taxable upon constructive receipt
- Funded: Assets are segregated so they are identified as a source
for payment of benefits
* Benefits are generally taxable upon funding b/c it is
transferable and not subject to forfeiture

24. Brief word: Stock Options
Creating the Ownership culture
Options give an Eee the right to purchase company stock at a predetermined
price, regardless of the FMV of the stock.
Nonqualified stock options (NSOs): Eee is taxed upon exercising the option.
Taxed on the difference b/n the fair market price and the grant price.
Incentive stock options (ISOs): No regular income taxes, but you must hold
shares at least 1 year from date of exercise and 2 yrs from grant date.
* capital gains not income taxes
Vesting and Expiration

25. SARs and Phantom/Performance plans
Stock Appreciation Rights (SARs):
*Like an Option:
 granted at a set price
 vesting and expiration
*Unlike: Eee not required to pay an exercise price. Eee receives the
net amount of the increase in the stock price in either cash and/or
shares of company stock
 can work in tandem with stock option plans
Phantom Plans:
Cash or stock bonus based on the value of a stated number of
shares, to be paid out at the end of a specified time period or on
hitting performance metrics.

26. Benefits of SARs/Phantoms
Why do we like them?
 can share the economic value of equity, but not equity itself
 less restrictive than conventional stock plans
 enhances existing ownership plans, like ESOPs
 potentially less expensive to implement
 potentially less expensive to administer

27. Things to think about
How to pay for them?
 do you promise to pay or set aside the funds?
 putting aside $ ties up cash flow
 do you pay in stock or cash or a combination
 is there a market for the stock?
 determining the vesting rights
 tax implications for vesting and payout
 who to offer to? Watch out for ERISA

28. Restricted stock plans
Restricted Stock Awards: Grant of stock in which the Eee's rights are
restricted until the shares vest.
The Steps:
1) Eee is granted a Restricted Stock Award
2) Eee must decide whether to accept/decline Award
3) Upon acceptance, Eee may be required to pay purchase
price for the grant
4) Eee must wait for vesting period to elapse
(time based or performance based)
5) When the Award vests, the Eee receives the shares of stock
or the cash equivalent without restriction

29. Stock Purchase Plans
Generally: Eees are given an option to purchase stock at a discounted
price at the end of an offering period.
 The Eer may deduct a percentage or dollar amount from Eee's pay
throughout the offering period.
*IRS limits
 Qualified and Non-Qualified Plans
 special rules and limitations for Qualified plans
 special tax treatment

30. GETTING IT IN WRITING
A. Employment Contracts
 No right for every position
A. Confidentiality Agreements
 Do you need to protect your secrets?
A. Work For Hire Agreement
B. Non-Competition and Non-Solicitation Agreements
 Know your industries’ practice
 Measure the impact on hiring/retaining the best

31. Disclaimer
This slide presentation is informational only and was prepared to summarize
relevant issues related to the topics discussed here. It does not constitute
legal or professional advice. You are encouraged to consult with a
Dickinson Wright attorney if you have specific questions relating to any of
the topics covered in this presentation.

32. Next Business Law & Order:
Employment II
March 18, 2013
© Ann Arbor SPARK