Working with family members can be an excellent way to benefit your business and build stronger relationships – or it can be frustrating and problematic. If you’re considering hiring family members, know that it will take preparation, dedication and communication to make it work. Before deciding whether to hire a family member, you should understand the pros and cons of working with family and how to set up the situation for success.
How to properly hire and work with family members
Hiring family members is not a decision to take lightly. Here are five tips to help you successfully hire and work with your family members.
1. Set clear expectations for family you hire.
Setting clear expectations for employees is essential under any circumstances. However, communicating expectations is critical when working with family members. If you’re hiring a family member, provide a job description outlining their duties, responsibilities and functions. Ensure they know whom to report to if it isn’t you.
2. Treat family like regular employees.
It’s crucial to treat a family member as you would any other employee. If your other team members feel you’re giving your family preferential treatment, it can cause resentment and discord, creating an unpleasant company culture.
On the other hand, you don’t want to abuse your relationship with your family member and mistreat them. Ensure that all your employees, family members or not, receive the same employee benefits package and treatment, and pay all employees according to their positions’ salary ranges.
Conduct effective performance reviews regularly for family members as you would for any other employee. Assess their progress, offer suggestions for improvement and reward them for excellent work.
3. Ensure family members are qualified for the job.
When hiring employees, many small business owners fall into the trap of hiring family because they’re family, not because they’re the best person for the job. Though it may seem like the right thing to do at the moment, this can hurt your business in the long run.
If you’re considering hiring a family member, ensure they have the qualifications and experience necessary to do the job – and do it well.
4. Have a plan in case hiring your family member doesn’t work out.
It’s essential to prepare for the possibility of terminating your working relationship with a family member. You may need to let them go because you no longer need their services, or you may have to fire them.
Because of potential family complications, create a plan to communicate working relationship changes while maintaining your personal relationship.
5. Communicate your expectations for your working relationship.
Communicate to your family member that you must maintain a professional relationship at work. You don’t want them popping into your office and sitting on your desk during their breaks. Like workplace friendship boundaries, separating your personal and professional relationships with any family members you hire is crucial.
A similar tricky situation arises when colleagues have romantic relationships. Learn how to manage workplace relationships carefully, whether you’re having an office romance or two of your employees are dating.
Should you hire family?
Since family is about as personal as it gets, whether you should hire a family member depends on various factors.
- Consider why you want to hire family. The first step is to carefully consider your reasons for working with family. Is it because you genuinely believe they will bring value to your business, or is it because they need a job and you feel obligated to help them?
- Consider your unique relationship. You must also consider your relationship with any family you hire. Can you maintain a professional relationship at work? “You’ve worked really hard to get your business where it is today,” said Meaghan Thomas, co-owner and president of Pinch Spice Market. “You need to be able to trust that your family member takes it as seriously as you do. If you hire a family member that ends up being a bit of a mooch or a slacker – or, on the flip side, you end up being a mean, unsupportive boss to them – you’re going to have problems that could seriously hurt your relationship.”
- Consider everyone’s goals. You’ve set achievable goals for your business, and your family member likely has career goals. Do your goals overlap? Is working with you a good career move? Do they have a vision for your business? Having goals and a vision in common can go a long way to promote a good working relationship and make it easier to work professionally with family.
Although it’s entirely legal to hire and work with family members, perceived nepotism can be divisive in the workplace. Establish strict policies in your employee handbook to prevent preferential treatment.
Tax considerations for working with family members
You need to consider some unique tax situations when working with family.
When employing your child
Consider labor and tax laws when employing your children. For example, children under 18 can’t operate dangerous machinery, and it’s illegal for children under the age of 14 to work at all. Carefully review federal and state laws, as they may vary.
Before your child begins working in your business, consider how you’ll pay them and withhold their payroll taxes; this will vary according to your business. The IRS rules differ for corporations and partnerships.
- Corporations: If your business is a corporation, all the money you pay your child is subject to payroll taxes.
- Partnerships: If your business is a partnership, all the money you pay your child is subject to payroll taxes unless both partners are the child’s parents.
When employing your spouse
If you hire your spouse as an employee, you must withhold federal income taxes and FICA taxes from their pay. If your spouse is a business co-owner, you can file as co-owners. If you do this, you must consider self-employed tax rules and obligations.
You can also file as a qualified joint venture, which can simplify your tax reporting.
When hiring adult family members
You should treat all adult family members you hire like any other employee.
- Have them fill out a W-4 form upon hire, and withhold federal income taxes according to the information on their form.
- Withhold FICA taxes and include family member pay when calculating your business’s FICA taxes.
- Include family member pay when calculating unemployment taxes and workers’ compensation.
- Pay overtime to family members the same way you do for regular employees.
- Provide the same benefits (paid time off, sick leave, health insurance) to family members as you do to regular employees.
You don’t have to pay federal unemployment tax or FICA tax (which covers Social Security and Medicare) on your children’s wages.
Pros and cons of working with family
There are benefits and drawbacks to working with family. On the one hand, it can mean a loyal and trusted confidant; on the other, it can mean a tense and unprofessional relationship that doesn’t add value to your business.
Here’s what some real small business owners who work with family members had to say.
Pros of working with family members
- You trust and are honest with each other. “They know you inside and out,” said Thomas, who co-owns Pinch Spice Market with her partner. “They can lift you up when you need it and call you on your baloney when you need to be grounded. You can be totally honest with them.”
- They’re dedicated to you and the business. “In many cases, your relationship can make the family member more loyal to you and your cause,” said Ryan Cook, digital marketing specialist and entrepreneur. “If you come from the same family, you probably have a lot of the same beliefs and attitudes, which can reduce disagreement and friction.”
- It’s an opportunity for children to gain experience. “[A family business] can be a chance for a young person to gain valuable working experience, setting them ahead of their peers when they are able to enter the general workforce,” said Tyler Read, founder of PTpioneer. “However, it can be a con in the kid’s eyes if they are forced into work they don’t want to do.”
- You could save money. “There can be a major financial benefit of working with your significant other, because you can share an accountant, a tax preparer, a cell phone plan and several other expenses that unrelated colleagues can’t share,” said Nerissa Zhang, CEO of The Bright App.
According to a PwC survey, 67% of U.S. family businesses have next-gen family members working for the company who are expected to become majority shareholders within five years. This foresight ensures continuity if a founder dies or leaves the business.
Cons of working with family members
- Work never goes away. “If you don’t set the right boundaries, being together all the time can get old, and you can start to feel like you don’t have any autonomy,” Thomas said. “You take work home with you – it’s hard to ‘turn off’ when your business partner also sits at the dinner table with you. It’s so important to define work and life space and try to not have them overlap too much.”
- They might end up resenting you. “If you are offering a family member a job in something they aren’t particularly interested in, just to help them out or for whatever reason, this is where problems could brew, as one could become resentful of the other’s success or happiness in their job,” said Michael Lowe, CEO of CarPassionate.
- They may abuse the relationship. “Family members may be more prone to disobey company protocol since they can leverage their relationship with you,” Cook said.
- It could affect your relationship. “Layoffs might be the toughest thing to do,” said Michael Tomaszewski, a certified professional resume writer and career advice writer at Zety. “Whatever reasons you have to let someone go, firing a family member will make you want to eat bubble wrap. There’s just not a good way to do this without ruining personal relationships, possibly with the whole family.”
Examples of successful family-run businesses
If you’re concerned about employing family members, it may help to look at family-run success stories.
- Walmart: One of the most famous family-run businesses, Walmart was founded by Sam Walton, who passed the business down to his three children. The Walton family currently owns more than half of the Walmart business at a market cap of $241 billion.
- Comcast: This telecommunications company is another successful family-owned business. Ralph Roberts founded it as a small cable company in Mississippi, growing it into a billion-dollar empire before passing down the business to his son.
- BMW: In 1916, Günther Quandt founded an aircraft engine production company, which later became known as BMW. BMW became one of the largest multinational manufacturers of luxury vehicles. While the company underwent numerous transitions over the years, the Quandt family still holds almost half its shares. Quandt’s grandson, Stefan Quandt, currently owns a 23.6% stake in the business and serves as a deputy chairman of the supervisory board.
- Nike: Nike is headed by the Knight family. Phil Knight founded it at the University of Oregon in 1964, and it’s now valued at $110.3 billion. Knight’s son Travis was appointed to Nike’s board of directors in 2015.
- Mars: The Mars company was started in 1911 by Frank C. Mars, who made and sold homemade butter candy. The company has been passed down to family members who now own Mars Inc. and sit on the board of directors. The Mars family is worth an estimated $78 billion.
Is hiring family worth it?
Hiring and working with family members is perfectly legal, but you should navigate the situation cautiously. Benefits include saving money and working with dedicated people you trust. However, it can also be challenging to establish clear boundaries and prevent work from affecting your personal relationship.
To secure a successful working relationship, clearly communicate your expectations, treat your family member as any other employee and ensure they provide value to your business. As long as they’re qualified, have a good work ethic and can deliver excellent results – and you clearly understand what hiring family entails – the relationship can benefit both parties.
Nadia Reckmann contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.