Nepotism Negatives: The Pitfalls of Hiring Family Members

BusinessNewsDaily's Chris Prickett says hiring family to work at your small business has its pros and cons. Cheap labor, unconditional loyalty and built-in familiarity are a few. Just be sure you’ve got a backup plan in place.

If you think it’s tough getting rid of a disgruntled employee, imagine sitting across the table from him at Thanksgiving dinner. Holiday discomfort aside, think long and hard before considering a family member as an employee.

I’m the youngest of five siblings. We’ve all been on our own for a very long time and we’re spread out all over the country, each doing our own thing. Consequently, we only get to see each other every few years. When we do, it only takes a few minutes for us to fall right back into our childhood pecking order.

This is precisely why I’d never hire any of my siblings to work for me. While I might be the boss to everyone else at work, to them I’m still the eleven year-old “baby” of the family. I have visions of being on the receiving end of noogies in the reception area and swirlies in the washroom…and that’s just from my sister.

There are a few positives about hiring a family member. Chances are, they won’t pad their resume (you already know they didn’t attend Harvard) and you can easily do a criminal background check at the next family reunion.

Now, it’s quite possible that you come from one of those families where the gene pool is crystal clear and stocked with fine upstanding worker fish. If you do, I commend you…and resent you at the same time. If that’s the case, the family tree might be a great place to pick your next hire, and there are some very sound arguments that support doing so.

• There are numerous tax breaks, especially when you hire family members under the age of 18 and even a few if they’re under 21. Look into incentives regarding withholdings, IRA’s for dependent children, and divvying payroll between the kids to lower your tax bracket. Don’t get too creative, it’s a taxman red flag.
• Family members are more likely to work odd hours and accept lower pay, especially during those lean start-up months. You’ll want to make sure you’re staying within the bounds of labor laws, though. You don’t want a bad apple snitching to the authorities.
• Perks like health insurance, childcare and vacations can be cheaper and less disruptive, with proper planning, which is more likely since you’ll probably have more open communication about these life issues with family members than with non-family employees.

If, after careful consideration, you do decide to bring on little Mort or Cousin Molly, the last thing you should do is relax any hiring procedures and practices. On the contrary, you should stick to the book and maybe even add a few pages.

If you don’t have an employee handbook, this is the perfect time to get one. If not, you are asking for trouble. And there ain’t no trouble like family trouble.

Policies for things like overtime, paid holidays and disciplinary guidelines must be comprehensive and you should have them writing. Don’t leave wiggle room. If you sense that this particular relative is trying the play the “kin card” for extra benefits, let that serve as a harbinger of what might lie ahead. Remember: Family knows how to push your buttons; they are the ones who installed them in the first place.

Another potential pitfall with hiring family is nepotism, especially if you have multiple employees. I describe nepotism as “scraping manure off of the family boot and fabricating it to the status of cow.” Now that may be a little harsh (you think?) but that’s nothing compared to destructive effect it can have on a business.

Bringing in your kid brother to sweep the floors on weekends might not cause a ripple, but how about calling on him in to manage a department? He had better be twice as good (and thrice as humble) as the last guy, or dissention and even outright mutiny could follow. And it’s not just fellow employees you need to worry about. Vendors, associates, and customers need to be considered as well. Nearly anything could be construed as favoritism, especially favoritism. Can you handle it? Is he worth it?

Like any other decision in business, you need to give the prospect of bringing aboard a family member a lot of thought, and it’s imperative that you have a “back door” strategy just in case things don’t work out. Although, in this case, you might need to change the lock on that back door.

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Chris Prickett is a successful entrepreneur who specializes in defying conventional thinking. He’s built and sold two companies and made many mistakes along the way. He started a Phoenix, AZ real estate business in 2007, during the worst market in modern history, and business is booming.