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Guide to hiring family members for small businesses

You may consider nepotism unethical, but you’ve also probably shopped at a “family business” in your local area at some point. Those considerations might make you wonder if you can hire family members to work for you as a small business owner.

When you’re getting your business off the ground, it’s normal to lean on family for help. After all, you know their work ethic and already have an established relationship. But how will you create boundaries between your personal and professional lives? Will you struggle to stay objective about your family member’s work performance? And how will this whole situation impact your other employees?

Hiring family members is a legal and acceptable practice in many businesses, but you have to deal with it carefully to avoid legal complications and unhappy employees. So in this guide, we’ll explore the ethics, legality, advantages, drawbacks, and what to consider when hiring family to work for you.

Is hiring family members legal?

In most cases, hiring family members is a perfectly legal and common custom for small business owners. It can even come with tax benefits for employers depending on their business type.

But hiring family members isn’t always the ethical choice especially in the corporate world — where the candidate pool is large and the competition is steep. In this scenario, when leaders and executives hire family members for a position, they may not be the most qualified candidate. And when it comes to government positions and public service, nepotism is often illegal because it presents a possible conflict of interest.

For employers wondering about the legality of hiring your children, you’ll want to research your federal, state, and local laws about hiring minors before you go through the hiring process. When it comes to hiring minors, there are different rules and regulations about how long they can work and the type of work they can do. There are also different rules for minors in different age groups. So if you want your children to work at your business, you’ll have to familiarize yourself with child labor laws to stay compliant.

[Disclaimer: This article wasn’t written by a legal expert and shouldn’t be taken as legal advice. It’s best to talk to an attorney or legal advisor before making any hiring decisions that may not be legally permissible in your area.]

Is hiring family members nepotism?

Hiring family members doesn’t always amount to a blatant act of nepotism. When a new small business owner needs help or is short on staff, they often rely on family members to pitch in as employees. After all, family members will often be more willing to show up on short notice for some casual work.

Say, for example, summer is coming quickly and you need an extra worker or two to staff your ice cream shop during your busiest months. In this case, bringing your teenage niece in to help isn’t exactly nepotism.

In straightforward cases of nepotism, a person in a position of power shows favoritism to a family member out of a pool of candidates or employees. This is considered unethical. For instance, think of a corporate executive who hires his inexperienced nephew to manage a department. And, in the case of government positions, it’s even illegal in many states.

The advantages and disadvantages of hiring family members

When you’re a small business owner strapped for help, hiring your family members can solve a lot of problems — and it comes with benefits, too. But it’s not a perfect solution for everyone. Here are some pros and cons to help you decide if it’s right for your business.

Pros

Let’s explore some of the reasons why bringing family members in to work with you might be a good idea:

  • You need to lean on family for help
  • You know their strengths and weaknesses
  • You get more family time
  • It’s part of your brand
  • Family members are more invested in your business
  • It’s a shorter, more straightforward hiring process
  • There are potential tax advantages

You need to lean on family for help

You’re more likely to ask family members for support in your first months or years of business. Even if your business is getting off to a good start, you may need a family member to help you out before you have the time or resources to find additional help. This is especially true if you’re dealing with a business-related challenge that your family member might have experience with, like taxes or technological solutions.

You know their strengths and weaknesses

You’ll likely know what to expect from your family members in terms of their strengths and areas for growth. And you won’t have to get references to vouch for them — you’ll already have an idea of their work ethic.

You get more family time

You get to spend more time with family members and experience the trials and tribulations of running a business together. Work often limits our time with family, but that’s not the case when you’re working with your relatives.

It’s part of your brand

Family-run businesses tend to attract customers who want a more meaningful, personalized customer experience. Many people also enjoy supporting local businesses that are run by familiar faces from their community.

Family members are more invested in your business

It only makes sense that relatives often take a greater personal interest in family businesses. They’ll be more emotionally (or even financially) invested in the success of your venture in a way other employees won’t.

It’s a shorter, more straightforward hiring process

You won’t have to write a job description, conduct lengthy interviews, run background checks, or call your family member’s references before bringing them on board.

There are potential tax advantages

According to the Internal Revenue Service (IRS), you don’t have to withhold Federal Unemployment Tax Act (FUTA) taxes if you’ve employed a spouse, parent, or child under 21. And you don’t have to withhold Federal Insurance Contributions Act (FICA or social security and Medicare) taxes if your business is 100% family-owned.

Cons

Working with family members has its drawbacks, too, especially when you introduce other employees into the mix:

  • It’s harder to be objective
  • Giving feedback can be tough
  • It may cause uncomfortable work dynamics
  • Other employees may feel resentful
  • You may bring personal issues to work
  • It might have a negative impact on your home life

It’s harder to be objective

Your family member may not be the best person for the job and even lack work experience, but it’s harder to be impartial when you have a close relationship with them.

Giving feedback can be tough

It can be awkward to deliver honest feedback or constructive criticism to a relative. You may hesitate to critique your family’s work performance because you don’t want to cause tension in your personal life, too!

It may cause uncomfortable work dynamics

Family members may have perceptions that employee rules and regulations don’t apply to them, creating awkward and unfair team dynamics. It may be harder to create a unified team when your non-family employees don’t feel they’re on equal footing with your family members.

Other employees may feel resentful

Perceived nepotism or favoritism can cause negative feelings among other team members. And when employees feel your family members get better treatment and more opportunities, it could have a negative impact on their morale.

You may bring personal issues to work

It might be tough to work with your family members if you’re in the middle of a disagreement or personal issue that doesn’t have anything to do with work. Employees and customers may even sense when you have a personal conflict with a family member.

It might have a negative impact on your home life

Hiring family members could have a negative impact on your family life outside of work. For instance, if you share your work day with your spouse or children, it can be harder to separate your work and personal life. You may also start bringing work issues into your home rather than relaxing and decompressing at the end of the day.

How to hire family members

Hiring family members might seem easier than hiring other team members. And in many logistical ways, it is. But it’s not as straightforward as you think, so here’s what to consider before hiring someone you’re related to.

Do your legal research

If you’re considering hiring your spouse, child, or another family member, you may hear the term “potential tax benefits” and get excited. But you need to do some legal research and talk to a tax professional or lawyer before you make a decision because these regulations often depend on your business type.

If you want to hire your spouse, for example, you may have heard that you don’t have to withhold Federal Unemployment Tax Act (FUTA) taxes from your spouse’s paycheck. But this exemption doesn’t apply to you if you’ve legally registered your business as a corporation or partnership.

And if you’re hiring your children, you’ll also have to think about the Fair Labor Standards Act (FLSA) and state labor laws. For example, federal law prohibits anyone under the age of 14 from performing work that’s not exempt by the FLSA, like delivering newspapers, babysitting, acting, or doing household chores. And many state labor laws require that minors:

  • Have work permits or papers
  • Only work a certain number of hours
  • Get breaks, meal times, and benefits

Hire only when it makes sense

When you’ve got a mixed group of family members and non-family members working for your small business, you’ll have to keep nepotism in check. One way to do so is by only hiring family members when it’s practical.

If, for instance, you run a small restaurant that gets busier in the summer months, it’s okay to bring in family members to help you if you can’t find other seasonal hires. And it also makes sense to reach out to family members when you’re facing a tight, competitive labor market.

If in doubt, ask yourself: “What’s my motivation for hiring this family member?” and put yourself in your other employees’ shoes. If you think your familial relationship is affecting your judgment, you should avoid hiring your relative.

Make sure they’re qualified

Sometimes we see our family members through rose-colored glasses, even if we’re aware of all their flaws and weaknesses. One way to combat that is by checking their qualifications the way you would with other employees.

In situations where it makes sense, ask your family member to fill out a job application, submit a resume, and take the time to look it over. Consider what kind of qualifications and how many years of experience applicants for similar jobs need. You could also ask your family member to sit down with you for an informal interview where you talk frankly about the job and what’s required before they take it on.

This may not be necessary in all cases — you probably don’t need to interview your 16-year-old niece who helps out in your ice cream shop in the summer. But you might consider it when hiring family members to fill more technical or managerial positions.

Don’t treat them differently

You don’t have to pretend you don’t have a close relationship with your family members at work. But you do have to create a culture that feels fair and equal for all your employees.

With that in mind, your family members should follow the same rules and policies you set for your business. Ask them to:

Communicate expectations beforehand

It’s uncomfortable to think about delivering negative feedback to or firing family members, but feeling comfortable doing so is yet another way to guarantee you’re treating them like other employees.

So, before hiring a family member, ensure you both agree that you’re going to hold them to the same standards and expectations you hold other employees to. Be clear that if you have regular performance evaluations with your other employees, you’ll also have them with your family members. And let them know if they don’t end up being a good fit for the role, you’ll have a discussion about ending the working relationship on good terms.

Complete the hiring process like any other employee

Get off to a good start by making sure your family member goes through the same hiring and onboarding process as your other employees. This should include:

  • An informal interview or pre-hire discussion for managerial or technical roles: You may not need to ask your relative about their work experience or educational background, but you can discuss why they’re a suitable candidate for the role and how they’re going to meet your workplace expectations.
  • Ask them to fill out all the necessary forms and paperwork: Ask your family member to go through your business’s new hire packet and sign all the required legal documents you need to stay compliant.
  • An onboarding and training period: This is when your relative will go through your employee orientation and start their training on your policies and procedures.

Make smart hiring decisions with Homebase

Hiring family members isn’t always unethical. Sometimes it’s a smart choice for new small business owners as long as they stay legally compliant and treat relatives just like other employees.

And if you want to create a great employee experience for all your team members — including those who are related to you — Homebase can help. Homebase helps small business owners create a great employee experience with free tools for time tracking, scheduling, team communication, and hiring so you can hold on to your best talent and maintain an excellent company culture.

Hiring family members FAQs

What is it called when you hire family members?

Nepotism is the practice of showing favoritism to family members in the workplace, which is generally frowned upon in the business world. But hiring family members doesn’t always constitute nepotism. 

For instance, hiring family members is a very common custom for small business owners who are just starting out, want to hire quickly, and need temporary help until they get on their feet. It’s also convenient for business owners to hire relatives because they’re familiar with their strengths and weaknesses, and family members will also likely be more invested in their business success.

Can companies hire family members?

For the most part, companies can hire family members. The government doesn’t prohibit companies and businesses from hiring family members, but it does restrict government officers and officials from participating in nepotism because hiring a family member could present a conflict of interest.

How does a company benefit from hiring family members?

There are many ways companies benefit from hiring family members. Here are a few of the biggest reasons:

  • A quick hiring process: You won’t have to go through a full interview and hiring process with a family member, especially when you need to find help quickly.
  • You know their strengths and weaknesses: You likely know your family members’ personalities pretty well, so you won’t run into any surprises.
  • Family members are more personally invested: They’ll care about your business almost as much as you do.
  • There are potential tax benefits: For example, a business owner hiring their spouse doesn’t have to withhold FUTA taxes from their spouse’s check. And if you have a family-owned business, you’re exempt from withholding FUTA and FICA taxes.
  • Branding: Family businesses often attract customers who want to support local businesses and are tired of giving their dollars to large corporations.

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