Find out the benefits and risks of hiring your children.
If you're a small business owner, it can be difficult to find and hire the talent you need. One possible solution to fill those gaps is to hire your children. As with every decision in life and business, though, there are pros and cons to consider before bringing your children on board. Here are eight pros and cons to hiring your children to work in your small business.
Pros of hiring your children
1. You may win out when it comes to paying the tax requirements for your children.
The tax requirements for family employees differ greatly from those for other employees. According to the IRS, payments for services performed by a child under the age of 18 aren't subject to Social Security and Medicare taxes if your business is a sole proprietorship or partnership where each partner is the parent of the child. Payments for services performed by a child under the age of 21 aren't subject to the Federal Unemployment Tax Act (FUTA). However, no matter your child's age, payment for their services are subject to income tax withholding.
2. There are tax benefits to hiring your children to join your small business.
If your child is of legal working age and performing work you'd ordinarily pay someone else to do, their wages are considered legitimate business expenses. Reasonable work includes data entry, filing, typing, customer service, cleaning, maintenance, and stockroom or warehouse work. Depending on your child's age, you may still be able to claim them as a dependent or get the tax credit benefit for them as well.
3. You're probably familiar with your children's capabilities and professional history.
One of the biggest complaints hiring managers have when looking for new talent is finding the time to sift through countless resumes to find the best, most qualified applicants possible. When you hire your children, you have the advantage of already being familiar with their work history, professional capabilities and skills, enabling you to shorten or completely bypass the interview process.
4. Your children can fill a need as well as gain professional experience.
With unemployment rates low and job applicants having their pick of positions, it can be tough for small businesses to find the talent they need when they're competing against large corporations and brands.
According to Bill Dunkelberg, chief economist of the National Federation of Independent Business (NFIB), "owners are growing their businesses and expect that they can sell more if they can produce more with additional employees. Investment spending has been solid for the past two years, and owners are choosing to invest in their workforce as well as by creating new jobs and raising wages."
The NFIB Job Report stated that, while the percentage of owners who have reported reducing their staff is at an all-time low, 21% of owners cited difficulty finding qualified workers as their single most important business problem. Hiring your children to work in your small business may be an effective way to fill open positions, while also giving your children the opportunity to gain professional experience.
Cons of hiring your children
1. You aren't filtering through an official talent pool.
Yes, we just stated this as a potential pro above, but it's important to keep in mind that while you can shorten or bypass the interview process by hiring your child, the interview process exists for a reason. If you skip the interview process entirely when you hire your child, you have to make sure they are just as qualified as potential external candidates. You know your child's skills, talents, potential and work ethic, but if you hire them to work for your small business, you need to be sure your business won't suffer as a result.
2. Firing your children if they don't turn out to be a good fit may be impossible.
While it's easy to see the upsides to hiring your child, it's important to consider what might happen if they aren't right for the position. It may be an exciting opportunity to welcome your child into your business, but if it doesn't wind up working out, it could be one of your worst nightmares, especially if disciplinary measures are needed. Firing your child could have repercussions far beyond the office, especially if any other family members involved in your business don't agree with your decision.
3. Your children may assume they have special privileges and take advantage of you.
We've all seen movie stereotypes where the boss's kid gets away with doing whatever they want – taking off early, coming in late, or pushing work they don't want to do onto other people – all without the boss noticing or, worse, not caring. While your child may not do anything quite so dramatic, they might still assume they have privileges that your other employees don't, which can cause conflict, especially if your other employees feel as though you're indulging or endorsing those assumed privileges. It's important that your child understands they have the same rights and privileges as every other employee.
4. Your children may unintentionally undermine your leadership and authority.
If your child assumes they have special privileges, they could start undermining your authority. If your child feels as though the rules don't apply to them, that can trickle down to your other employees, making them feel that if your child can act without repercussions, then the rules shouldn't apply to them either. This can quickly spiral out of control, leaving you with a much bigger headache than just trying to fill an open position.