Hiring Family Members as a Small Business Owners

by | Apr 29, 2022 | Financial Advice, Small Business Cash Flow

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Family-owned businesses are often the heart of a small community. People look at a business that has been passed down from family member to family member as more personable and committed to caring for its customers. There are still questions, however, as to whether or not it is legal to hire family members to work in their business. Can you hire a family member as an employee or contractor? Yes, you can! Hiring family members may be a dream come true for many.

Hiring a Family Member

Businesses have been passed down from family member to family member since the beginning of time. The best way for that family member to learn how to manage the business is to work there. Hiring a child or younger family member can teach them responsibility and also different skills they can use whether they choose to remain in the business or move on to another line of work. As a business owner, you also earn tax benefits depending on the structure of your business.

Hiring a Spouse

Spouses often work alongside their significant other in a family business. They can work together sharing responsibilities or they can have a traditional employer/employee relationship. Working together to run a business is normal for many married couples. They share the rewards of being able to spend time together and also reap the financial benefits of certain tax provisions.

Hiring Your Children

Children can also be employees of your business. The structure of your business will determine how they are taxed, as well as how you, as a business owner, are taxed. Your children are a ready-made workforce. A family-owned business often employs aunts, uncles, children, nieces, and nephews. Your children not only learn a trade, they are often groomed to take over the business when you retire.

Hiring Your Parents

Many business owners will offer their parents a job as a way to make extra money after they retire. Your parents have knowledge and experience they have gained through years in the workplace. Your parents will have to follow the same tax guidelines that everyone else does. Allowing your parents to stay active with the business keeps them busy and gives them an opportunity to use what they’ve learned.

Hiring Family Members as Contractors

Having a child or other family member with a special skill allows them to work for you as an independent contractor. Instead of having them fill out a W-2, they will work under a 1099 and follow the tax obligations that are associated with that type of filing. This allows them to work for other companies as well. Independent contractors are often paid by the job instead of by the hour. Having a family-owned and operated business can be rewarding and offers many benefits for everyone involved. If you choose to employ your family members, you will need to look into the different business structures and the tax guidelines associated with each one. It can be an incredibly rewarding and very successful endeavor for all of you!