Q&A: Should I employ a family member?

Asking relatives to lend a helping hand with your business is quite different from recruiting somebody from outside the business. What are the additional considerations when hiring kith and kin and is it wise to choose a family member?

When does it make sense to employ a family member, and how can they help my business?

Theoretically, you'll get extra commitment because it's a family concern: 'one day all this will be yours' is a powerful motivator. Family members are often more committed because they see longer-term rewards.

On the flipside, a relative who doesn't want to be involved may resent their position and drag down morale. Meanwhile, non-family employees could question why a relative is recruited to a senior role when other candidates may be better qualified. Such appointments need to be handled sensitively.

What are my criteria for employing relatives?

Ask them if they really want to be in the business. Do they have the skills to do the job? What qualities will they bring to the workplace? It has to be a business decision and not one based on sentiment.

Ask yourself if you can afford to take them on. It may be cheaper in one respect, because if they live at home (ie in the same house as you) and help run the business, the National Minimum Wage won't apply.

Also, ask yourself if you're prepared to treat them impartially and involve them in decisions as you might any other employee. A family member shouldn't be treated as a skivvy.

Are there different tax arrangements when employing a family member?

Family employees are taxed in just the same way as regular staff — through PAYE. HM Revenue & Customs would come down very strongly on any attempted tax evasion, such as the use of cash payments. Issues can arise where dividends are paid to family members owning shares. These payments must be distinguished from salaried pay because they won't attract National Insurance contributions.

HMRC will also scrutinise income shifting between family members. They'll want to make sure that if a spouse or child is being paid by the business they're actually doing the work to justify that salary. This is to deter higher-rate tax payers shifting income onto lower-paid family members to avoid tax.

Should I consider a straightforward employment contract or is a partnership a better option?

It's a difficult decision requiring careful consideration. Partnerships are easy to get into but difficult to dissolve unless a properly drafted partnership agreement is in place. Generally speaking, it's easier for employer and employee to join and part company using a regular employment contract.

What are the legal implications if there are problems at work?

Relatives have the same legal rights as the rest of your workforce and can just as easily bring claims for discrimination or unfair dismissal. If disputes arise, they can often become bitter and unpleasant, spreading beyond initial disagreements to affect the whole family.

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