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Is Hiring Family a Good Idea?

While family businesses are more common than not, mixing relatives and money can be a source of great tension. There are ways, however, to increase success when making family a part of your business. 

First, start out small. Pint sized, in fact. Consider hiring your own children to perform chores. Children as young as 8 to 12 years old can reasonably wash windows, remove trash, shred paperwork, and perform other similar duties. The tax advantages? According to the IRS, wages for a child under age 18 working for his or her parent in a trade or business are not subject to social security and Medicare taxes, as long as the trade or business is a sole proprietorship or a partnership between the child’s parents.

Tapping your children for support has added benefits as well. Lawrence Stovall, owner of San Antonio-based Auto Brite Company, brought in his daughters, ages 9 and 16 at the time, to help maintain safety data sheets and label products.

“The biggest thing they learned is how to get up in the morning and get yourself out the door for work. They also learned that some jobs can be fun, others are not; but they all need to be done,” he says. What’s more, the kids provided a morale boost around the shop. “When the kids were gone, the staff really missed them,” he laughs.

Then, consider hiring your spouse for even light administrative work. Employing or paying a spouse comes with three main benefits. He or she will then:

  • Be able to travel with you, tax deductible, on business trips.
  • Be eligible for medical expense coverage including insurance, deductibles, prescriptions and more, within limits and certain nondiscriminatory conditions.
  • Be able to reduce self-employment taxes and deductibles (when applicable).

The trick with employing a spouse, however, comes with paying attention to health benefits. Covering your spouse under your own policy is different than covering him or her as an individual employee, and the advantages depend on several changing factors. Evaluate every single year, without fail. And be prepared to remove your spouse from your policy and put him or her onto an individual plan whenever it makes the most financial sense.

Crossing the threshold into more risk lies in:

  1. Employing relatives outside your household such as a brother or sister.
  2. Placing family members in key positions in the company.

When extended family becomes heavily involved in the family business, things can get complicated. What if they take advantage of their positions? What if they need to be fired? Sarah Bishop, the woman behind San Antonio’s beloved Billy’s Western Wear, filled her business with family members, now including several of her adult grandchildren and their spouse. Her secret? “When it comes to work, they are employees first, family second. They are treated the same as everyone else,” she explains.

Be sure that your asset protection plans are strong when hiring family members to take on critical roles. There’s no one better to test the strength of your asset protection than a bankruptcy attorney. What’s more, heading straight to a bankruptcy attorney to “bless” your plan takes much of the fear out of the process going forward. In most cases, bankruptcy is seen as the worst possible scenario when family feuds affect a business. Prepare for that possibility, and your peace of mind and sense of control will increase tremendously.

Image credit: grafvision / 123RF Stock Photo

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