You own a small business and your children need jobs. Should you hire them?  

There are plenty of reasons to do so, the largest of which is the tax incentives for children under 18 who work part-time for a parent who's a sole proprietor or a partnership of both parents. 

When your minor child (i.e., under 18) is an employee, you can bypass withholdings such as FICA and FUTA (the latter until age 21). Also, because your child is earning income, he or she can contribute to an IRA. In the case of a Roth IRA, the money can be used without penalty to help pay for college or of course just to help the child get an early start on retirement savings. (See Roth IRAs: Distributions.)

There are other good reasons to hire your child, but what about the drawbacks? There aren't many, but here are six to consider. 

1. Will Boundaries Be Breached?

Being a parent and also a boss to the same person may not be as easy as it sounds. You have a business to run. Will your child see you having conversations that you might prefer her not to hear? Will he see business practices or data that you don't want him to know about? In order to receive the tax advantages mentioned above, you must treat your child as you would any other employee. Are both of you comfortable with that? 

2. Would Another Employer Teach Better Life Lessons?

Regardless of how officially you treat your child, he or she still enjoys a safety net that comes from working in a family business. Ask yourself whether working for another company would give your children a more genuine experience of starting on the bottom rung of the corporate ladder and working their way up.

3. How Will Other Employees Be Affected?

Will hiring your child risk hurting employee morale? Perhaps employees with greater longevity deserve more hours or believe that you should hire someone more qualified for the position. It is your company, of course, and hiring a family member is your decision to make, but be aware that it can affect the overall morale of the rest of your workforce. (For additional information, read 5 Unique Ways To Increase Office Morale.) 

4. Will Family Dynamics Interfere with Smooth Business Operations?

Sometimes working with family members, even those you seem to click with, can give rise to arguments and other conflicts that come with being with one another for long periods every day. Sometimes you just need a break, which can be hard to come by when you hire a child. If unchecked, the constant togetherness and ensuing conflict could create a breakdown in the family environment.  

5. Will Your Child Take the Job Seriously?

For you, your business is most likely your life. You live it, breathe it and love it – and hope that your child will one day take it over. (See Succession Tips for Family Businesses.) But what if he doesn't? You have to be prepared for the possibility that your child won't feel the same way as you do and may treat this as just another job, or even slack off because he knows he won't get fired by his parent. Similarly, it may be too early to introduce her to your business. The work may not be enjoyable or engaging, and she might make a judgment about it that would be different if she were older. 

6. Should Your Child Gain Some Outside Knowledge First?

Regardless of how good you are at what you do, there are others in your business with different skills and knowledge. Bringing new ideas into a family business is extremely valuable. Working at one of these other companies in your field could expose your child to different skills, practices and knowledge that could greatly benefit your company in the future. 

The Bottom Line

Few business experts would advise you against hiring your child. It’s a great idea, especially because of the tax benefits that they (and you) receive if they are under 18, or in the case of FUTA, 21. But beyond the dollars-and-cents motivations, there are relational considerations. You should hire your child only if you believe it will cause no harm to your relationship and your child will benefit professionally. Your own business concerns pale in comparison with the value of a positive job experience for your child. 

 

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