Should You Hire Your Child?

Hiring your own children – whether employed part time in the mailroom or full time managing your operations – can be an adventure. But is it always the best idea?

It can be beneficial for both parties

As an employee of your business, a school-aged child can develop a strong work ethic and money management skills. Summer income may be used to pay for school clothes, music lessons or sports camps. “Don’t forget to fund a Roth IRA based on your child’s earnings from your business.” – Rich Middleton, CPA

And hiring an adult child may be less risky than bringing a stranger onboard. After all, you know your kid’s capabilities and commitment level.

Tax advantages are another positive of hiring your child. For instance, your child can earn up to the standard deduction for the year and pay no income tax. For 2018, this amount is $12,000.  In a sole proprietorship or family partnership, you won’t be required to withhold Social Security or Medicare taxes if the child is under age 18. But if the IRS audits your firm, you’ll need to show that your kid’s wages were reasonable in relation to the jobs performed.

“It would be difficult to prove that your child’s services are worth $20 per hour if you are only paying other employees $10 per hour.  You should keep records of the hours worked and jobs performed.” – Julie Strohlein, CPA

But it may not work for everyone…

In some cases, hiring your children (especially adult kids) may not be sensible. Suppose your recent college graduate takes advantage of their status as a family member to take extended lunch breaks. If given (or perceived to be given) preferential treatment, the morale of other employees may suffer. And if you let your child go, you may end up with a strained family relationship.

“Conversely, a very capable and hard-working child may feel they have to work even harder than the other employees to continually prove that they deserve the position they have been given.”  – Julie Strohlein, CPA

If you’re thinking about hiring your kids, consider the following suggestions:

1. Determine if they’re actually qualified for the role. They need to fit your company and contribute to its success. Your adult child whose sole work experience is babysitting probably shouldn’t be ushered into top-level management.  “If you hope the employment is for the long haul, it will benefit both your child and the company if they start at the bottom and work their way up.  This gives them a thorough knowledge of all facets of the company’s operations.” – Julie Strohlein, CPA 
2. Consider a trial basis. Employing your child for three or six months on a probationary basis will help both you and your child determine whether the role is truly a good fit.
3. Use a written contract. Don’t rely on a handshake or verbal agreement. Specify duties, responsibilities and wages in a written contract.
4. Follow the chain of command. Your child should report to someone else (not you) for their work schedule, performance reviews, compensation and bonuses.
5. Reconsider being your child’s first employer. Think about letting your child develop skills and a professional identity at someone else’s business before working for you. It may be helpful to learn to function as a valued employee somewhere else first.

”Working for an unrelated party may help your child determine if your business coincides with their desired career path.”  – Rich Middleton, CPA

Consult with your Alloy Silverstein accountant and advisor for specific guidance and what would be best for your family business.

Further Reading:

• What to Know Before Hiring Your Child this Summer
• 5 Tips for When your Employees are Family Members
• Taxes, Teenagers, and Summer Jobs
• Should You Hire Your Spouse?