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Legal to pay employee only if, and after client pays? Illinois

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  • Legal to pay employee only if, and after client pays? Illinois

    I have a small business, currently not offering any benefits. I've been approached by someone who wants to bring me a client, and also wants to be an employee of my business to perform the work for that client. I would do the normal withholding as I do for other employees. However, he would have a high hourly rate, and this would set me back quite a bit to cover his payroll before the client pays me for his work. Is it legal for me to formulate an agreement such that he would be paid after I receive payment from the client? (This would be similar to how I might structure a corp-2-corp relationship if he was an independent contractor who was incorporated.)

    I'm going to take a stab at this and say no, because if the client never pays, the employee would never get paid, and that wouldn't be legal? If that's the case, as an alternative, could I pay him minimum wage at the end of each month based on the number of hours worked, and then when the check comes in pay him the rest? Might this then be considered a commission?

    Also, I want to point out the distinction of the employee earning his commission "after I get paid by the client" vs "when I invoice the client". Although it's unlikely, in general I want to rule out any scenario where an employee and client get together to dream up a huge invoice, the employee gets paid, and then the client suddenly goes out of business or simply refuses to pay the bill.

  • #2
    Assuming that he would be considered an employee, then no, it would not be legal to pay him only after the client pays, regardless of what he signs.

    If he met the qualifications of an IC, then I suppose a skilled contract attorney *might* be able to formulate a contract with that restriction. But as an employee, No. Definitely not.
    The above answer, whatever it is, assumes that no legally binding and enforceable contract or CBA says otherwise. If it does, then the terms of the contract or CBA apply.

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    • #3
      Originally posted by cbg View Post
      Assuming that he would be considered an employee, then no, it would not be legal to pay him only after the client pays, regardless of what he signs.
      Does that apply to just my first question, or the 2nd scenario too? (Can I pay him a lower wage until the client pays?)

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      • #4
        Possibly, if done correctly. Lets say that Bob is a commissioned employee who is not subject to the Outside Sales or Auto Dealer or Retail/Service Establishment (aka 7(i)) exceptions. Or any other of the FLSA exceptions. Bob is legally a vanilla non-exempt employee under the federal FLSA law. Under that law, we must pay Bob at least the federal minimum wage of $7.25/hr and must pay Bob an overtime premium of at least 50% Regular Rate of Pay for all hours worked past 40 in the workweek. Under FLSA, that is all we must do.

        Now all law is not FLSA. We have state law and we have Common Law. Under Common Law, if we tell Bob that he makes $15/hr, while the feds do not care about the base pay in excess of MW, Common Law does. So if we promised Bob $15/hr, then he can indeed take us to court (a Common Law remedy).

        HOWEVER, if we are smart and tell Bob before any work is done that he making MW with OT if applicable now but will get a bonus conditional on the client actually paying us, then we very likely are very legal at that point.

        If Bob is legally not an employee, then we are looking at contract law only. HOWEVER, this is a very good thing to get right. Worker classification is a function of Common Law, and certain statutory laws such as IRC and FLSA (which mostly follow Common Law). There are a bunch of rules which must be followed for Bob to not be an employee. Under Common Law there is a doctrine called Res Ipsa Loquitur, which basically means "the thing speaks for itself". If you call your dog Spot a cat, legally it is not so. Spot still looks like a dog to the law. And if Bob looks like an employee to the law, you saying otherwise does not make it so.

        We would also need to look at any laws specific to your state. Which is not my state. It quite possibly has a higher-then-federal minimum wage and may have some other applicable laws that I am not familar with.
        "Reality is that which, when you stop believing in it, doesn't go away".
        Philip K. **** (1928-1982)

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        • #5
          Thank you DAW. Great explanation!

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