May 25, 2017
Creating a workforce out of family and close friends has its advantages. Most businesses that hire family members do so to provide business continuation and reduce overhead, as well as provide jobs and experience for loved ones. Presumably, you wouldn’t hire relatives if you didn’t already think that you could get along with them. But in practice, working closely with family and friends can create unique problems that don’t exist when you hire outsiders.
If relatives turn out to be a bad fit as employees, you can solve your workplace dilemma by firing them. But you may still have to sit next to them at Thanksgiving dinner and answer to criticism from the family about personnel matters.
So before you say, “you’re hired,” take a look at some of the pros and cons of employing family and close friends and consider the variety of dual roles they may play.
The Upside of Hiring Family Members
- Family members often feel more invested in the success of a business. Therefore, they are more likely to go the extra mile, and hopefully, remain with you for the long-term.
- There may be fewer personality clashes, since you already know each other.
- The dedication of family members may serve as an inspiration to non-family employees to work harder.
- Overhead costs and personal expenses can be reduced. For example, if you employ your teenagers (under 18 years old), their wages are not subject to Social Security, Medicare or federal unemployment taxes.
At the same time, your immediate family and business can reap other tax and financial benefits from hiring your children. The business can deduct the wages. Your child can shelter up to $6,350 in wages from federal income taxes in 2017 (up from $6,300 in 2016) and invest some or all of the wages earned. The investment earnings and gains will be taxed at low rates. Later, your child’s savings can be used to help pay for college or a car, which means you won’t have to come up with quite as much cash.
The Downside of Hiring Relatives
- It can be hard to separate work issues from family issues. If employees-relatives feel they’re being treated unfairly or if they take advantage of their positions, family relationships can become strained — sometimes beyond repair.
- Just as hard-working family employees can inspire outside employees to work harder, underperforming family members can have the opposite effect. Non-family staff members may resent having to do extra work to cover for the boss’s relatives, especially if they make more money and enjoy more business privileges.
- Likewise, resentment can occur if non-family members perceive that relatives were hired even though they weren’t qualified. Employees want to see fairness and know their efforts will be appropriately rewarded, whether or not they are related to the boss.
Through their Eyes
Clearly, hiring family has good points and bad. If you decide to go that route, it can help to put yourself in the places of the people who make up your company’s cast of characters. Many of them play dual roles in the family and the business. Understanding their perspectives can make it easier to avoid some problems and to solve dilemmas that do come up.
- Non-Owner Family Employees. Family members who are employees but not owners may experience some hard feelings such as: “I’m doing all the work, but my brother (aunt, cousin, father, etc.) gets all the profits and privileges.” Or they may expect that as family members, they should be involved in decisions and be compensated more by the company. Right or wrong, relatives working in the business generally expect to be treated differently than non-family employees.
- Non-Family, Non-Owner, Employees. These staff members are usually tuned into signs of nepotism. They can also be affected by family conflicts in the day-to-day operations of the business and feel there is little chance for advancement. Plus, these employees may believe that, no matter what disputes arise between family and non-family staff members, they will not prevail.
- Non-Family Members, Part-Owners and Employees. With the rise of employee stock option plans, this group is growing. Some employees could also become owners through the process of succession. Naturally, employees who have partial ownership will want to be treated like owners, although that can be tough in a long-standing family business.
- Part-Owner Family Employees. These people hold some of the most difficult positions in a family business. They are responsible for the well-being of the company, and are also the ones who often try to create harmony between the needs of the family and those of the business. In other words, they are professional jugglers and peacekeepers.
Once you try to see the roles of the various players in your business through their eyes, you may be able to anticipate some problems and avoid them. For example, make sure it’s clear who is involved in the decision-making process and let staff members know that advancement is based on merit, not blood (assuming that is true). If things aren’t working out with your current employees and family member part owners, it may be time for action.