Small Business Guide: Hiring Family Members in 2024

Hiring a Family Member: Small Business Guide

You may think nepotism is unethical, but you've probably also bought from a "family business" in your area. For these reasons, you may be wondering if you can hire family members as employees as a small business owner.

As you build your business, it's natural to lean on your family for help, given their known work ethic and the strong relationship you share. However, how will you draw boundaries between your personal and professional life? Will you face challenges in remaining objective when evaluating your family member's work performance? And how will this situation impact your other employees? Additionally, managing documents efficiently becomes crucial to maintaining professionalism and clarity in such scenarios.

Hiring family members is a legal and acceptable practice in many companies, but it must be handled carefully to avoid legal complications and unhappy employees. Effective recruitment management is crucial to ensure fairness and transparency in the process. In this guide, we'll explore the ethics, legality, benefits, disadvantages, and key considerations when hiring family members in your business.

Is Hiring Family Members Legal?

In most cases, hiring family members is a perfectly legal and common practice for small business owners. Depending on the type of business, hiring family members may even have tax benefits for the employer.

However, hiring family members is not always an ethical decision - especially in the corporate world, where the applicant pool is large and competition is fierce. When executives and senior managers hire family members for a position, they may not be the most qualified candidates. And when it comes to government jobs and civil service, nepotism is often illegal because it presents a potential conflict of interest.

Employers concerned about the legality of hiring their children should research federal, state and local laws regarding hiring minors before hiring. There are various rules and regulations for hiring minors regarding how long they can work and what type of work they can do. Additionally, different rules apply to minors at different ages. So if you want your children to work in your business, you need to familiarize yourself with child labor laws to stay compliant.

[Disclaimer: This article was not written by a legal expert and should not be taken as legal advice. It is best to consult with an attorney or legal counsel before making any hiring decisions that may not be legal in your area].

Is Hiring Family Members Nepotism?

Hiring family members is not always 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 step in as employees. After all, family members are often more willing to step in for odd jobs on short notice.

For example, let's say summer is upon us and you need an extra employee or two to staff your ice cream parlor during the busiest months. In this case, bringing in your teenage niece to help out isn't exactly nepotism.

In simple cases of nepotism, a person in a position of power favors a family member from a pool of applicants or employees. This is considered unethical. For example, consider a corporate executive hiring his inexperienced nephew as a department head. And in the case of government positions, this is even illegal in many states.

The Pros and Cons of Hiring Family Members

If you're a small business owner short on labor, hiring family members can solve a lot of problems - and it comes with benefits, too. But it's not the perfect solution for everyone. Here are some pros and cons to help you decide if it's the right fit for your business.

Pros

Let's look at some of the reasons why bringing in family members to help out can be a good idea:

• You need family help
• You know their strengths and weaknesses
• You have more time to spend with family
• It's part of your brand
• Family members are more involved in your business
• It's a shorter, less complicated hiring process
• There are potential tax benefits

You have to rely on family help
In the first few months or years of your business, you're more likely to ask family members for help. Even if your business gets off to a good start, you may need a family member's help before you have the time or resources to find additional help. This is especially true if you're tackling a business-related challenge that your family member may have experience with, such as taxes or tech solutions.

They 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 don't need to get references to vouch for them - you already have an idea of ​​their work ethic.

You have more time for family
You can spend more time with your family members and go through the rigors of running a business with them. Work often limits our time with family, but that's not the case when you work with your relatives.

It's part of your brand
Family-run businesses tend to attract customers who want a personalized customer experience that has more meaning. Many people also like to support local businesses run by familiar faces from their community.

Family members are more involved in your business
It's only logical that relatives often have a greater personal interest in family businesses. They are more emotionally (or even financially) invested in the success of your company than other employees.

A shorter, more straightforward hiring process
You don't have to write a job description, conduct lengthy interviews, run background checks, or get your family member's references before bringing them on board.

There are potential tax benefits
According to the Internal Revenue Service (IRS), you don't have to withhold Federal Unemployment Tax Act (FUTA) taxes if you hired 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 company is 100% family-owned.

Cons

Working with family members has its drawbacks, too, especially when you involve other employees:

• It's harder to be objective.
• Giving feedback can be difficult
• It can create an awkward work dynamic
• Other employees may feel upset
• You may bring personal issues to work
• It could have a negative impact on your personal life

It's harder to be objective
Your family member may not be the best person for the job or have any work experience, but it's harder to be impartial when you have a close relationship with them.

Giving feedback can be difficult
It can be uncomfortable to give honest feedback or constructive criticism to a relative. You may be hesitant to criticize your family's work performance because you don't want to cause tension in your personal life too!

It can create an awkward work dynamic
Family members may feel like coworkers' rules and regulations don't apply to them, creating an awkward and unfair team dynamic. It can be harder to create a unified team if your non-family coworkers don't feel like they're on equal footing with your family members.

Other coworkers may feel upset
Perceived nepotism or favoritism can create negative feelings in other team members. And if employees feel like their family members are treated better and have more opportunities, it can negatively impact their morale.

You may bring personal issues to work
It can be difficult to work with your family members when you're in the middle of a disagreement or personal issue that has nothing to do with work. Coworkers and customers may even sense when you're having a personal conflict with a family member.

It could have a negative impact on your personal life
Hiring family members could negatively impact your family life outside of work. For example, if you share your workday with your spouse or children, it can be harder to separate your work and personal life. You may also find yourself bringing work home with you instead of relaxing and unwinding at the end of the day.

How to Hire Family Members

Hiring family members may seem easier than hiring other team members. And in many ways, it is. But it's not as easy as you think. 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 other 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 advisor or attorney before making a decision, as these regulations often depend on your type of business.

For example, if you're looking to hire your spouse, you may have heard that you don't have to withhold taxes under the Federal Unemployment Tax Act (FUTA) from your spouse's pay. But that 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 also need to think about the Fair Labor Standards Act (FLSA) and state labor laws. For example, federal law prohibits anyone under 14 from doing work not exempt from the FLSA, such as delivering newspapers, babysitting, acting, or doing housework. And many state labor laws require minors to:

• Have work permits or papers
• Work only a certain number of hours
• Receive breaks, meal times, and benefits

Hire only when it makes sense

If your small business has a mixed group of family and nonfamily members working, you need to keep nepotism under control. One way to do this is to hire family members only when it's convenient.

For example, if you run a small restaurant that gets busier in the summer months, it's OK to bring in family members to help if you can't find other seasonal workers. And it also makes sense to reach out to family members if you're facing a tight, competitive job market.

When in doubt, ask yourself, "What is my motivation for hiring this family member?" and put yourself in the shoes of your other employees. If you think your family relationship is influencing your judgment, you should avoid hiring your relative.

Make sure they're qualified

Sometimes we see our family members through rose-tinted glasses, even when we're aware of all their faults and weaknesses. One way to counteract this is to review their qualifications as you would other employees.

In situations where it makes sense, ask your family member to fill out an application form, 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 positions need. You could also ask your family member to sit down with you for an informal interview where you can talk openly about the job and requirements before they accept it.

This may not be necessary in all cases—you probably don't need to interview your 16-year-old niece who helps out at your ice cream shop during the summer. But you might consider it when hiring family members for 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 need to create a culture where all of your employees feel fair and equal.

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

• Read and sign your employee handbook
• Include them in your team communications and messaging
• Include them in your employee schedule
• Call them to staff meetings and training
• Expect them to use the same time tracking system as other employees

Communicate Expectations Upfront

It's uncomfortable to give negative feedback or fire family members, but being comfortable doing so is another way to ensure you're treating them like other employees.

So before you hire a family member, make sure you both agree that you'll hold them to the same standards and expectations as other employees. Make it clear that if you do regular performance reviews with your other employees, you'll do them with your family members, too. And let them know that if they end up not being a good fit for the job, you'll have a conversation about amicable termination of employment.

Complete the hiring process like any other employee

Do it well 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 conversation for managerial or technical positions: You may not need to ask your relative about their work experience or educational background, but you can discuss why they're a good candidate for the job and how they'll meet your expectations in the workplace.
• Ask them to fill out any required forms and paperwork: Ask your family member to go through your company's hiring packet and sign any required legal documents you need to stay compliant.
• An onboarding and training period: During this time, your relative will attend your employee orientation and begin training on your policies and procedures.

Make smart hiring decisions with IceHrm

Hiring family members isn't always unethical. Sometimes it's a smart decision for new small business owners, as long as they follow the law and treat relatives like other employees.

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

Hiring family members isn't always unethical; it can be a smart decision if handled properly. Tools like IceHrm can help you maintain fairness and compliance, creating a great employee experience for all.