February 20, 2018 | Posted in:

Family Business: 5 Tips for When your Employees are Family Members

Working with family can be a pleasure. It can also be a pain, especially if you have to terminate a family member’s employment. Here are tips to help you ease the strain of mixing your family and employee relationships.


#1 Hire for the right reasons.

Make your hiring and firing decisions based on the skill sets needed to keep your business operating effectively. Hiring your son because he’s struggling to find a job or employing your niece so she’ll be nearby are not good business reasons for bringing staff on board. On the other hand, you may know more about a family member’s talents than you would a stranger’s. Working with them may help bring out the best in both them and your business.

An additional consideration: “If you own a business and employ your children, there may be a restriction on how much you can contribute to a company sponsored retirement plan.” — Ren Cicalese III, CPA, MST.

#2 Set clear expectations.

Communicate the job’s performance requirements to your family member right from the start. Clearly define company policies for promotion, compensation and termination. Make it plain that unethical conduct will not be tolerated and that every employee will be held to the same standard of behavior.

Another area where expectations should come into play is planning for the future of the business. “If you’re thinking about leaving a business to your children, it’s important to know whether or not they have an interest is running the business. If not, you’ve got to start thinking about a different succession plan,” explains Ren.

#3 Avoid nepotism.

Nepotism is our human habit of treating family members more favorably than others. Keep in mind that your non-family employees will be hypersensitive to any favoritism you show to relatives. If someone is a poor performer and doesn’t get called out on it because they’re listed in your family tree, you’ll make their poor performance contagious. The rest of your company will likely start suffering from poor morale and your credibility as a boss will take a hit.

From the opposite perspective, conflicts could arise more easily with family members as well. “If the family management team can’t agree on an issue, some businesses bring in an independent third party to help make a final decision. Think about forming an advisory board in case you ever find yourself in that type of situation,” Ren suggests.

#4 Document performance.

Throughout your family member’s tenure, maintain a detailed personnel file that tracks behavior resulting in disciplinary actions. In the unfortunate case of a necessary firing, a well-documented file will provide a narrative record that lays out your reasons and clearly communicates the evidence leading to your decision.

#5  If you have to fire, keep it professional.

Set a formal termination meeting. You may want to involve a direct supervisor or a human resources professional to ensure that your company is appropriately represented and to prevent the conversation from lapsing into emotional arguments. Focus the meeting on your family member’s job performance and provide them an opportunity to give feedback. Listen to the feedback politely without interrupting or getting drawn into an argument. Use the end of the meeting to suggest resources and contacts to help them transition to a new career. And give them the option to resigning rather than being terminated.


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The bottom line: Adhere to formal business standards and communicate in a professional, businesslike manner with your related employees. This will help you cultivate a great working relationship with family members, and keep relationships intact even if the job situation doesn’t pan out. Contact Alloy Silverstein for guidance and advisory services to optimize your family business.


The information contained in this newsletter is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information or for assistance with any of your tax or business concerns, contact our office at 856.667.4100.


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