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  • Writer's pictureMarc Primo

How can family businesses thrive?

This is an article ‘How can family businesses thrive?’ by Marc Primo

Running a business with family members can be a double-edged sword. Things can become frustrating if the wrong family member fails at his task, but nepotism often prevails and provides the weakest link with job security.

However, family businesses also have advantages in the form of trust, loyalty, and a sense of urgency to succeed in the family's name. If you are planning to hire some family members in your company, always plan on how you can ensure their commitment and establish open communication. As with any business, there are pros and cons and hiring family members can make things a lot more difficult if you do not put enough thought into it.

While identifying the potential risks and merits in hiring a family member seems easy enough, developing suitable approaches is essential. You probably know that there will be a need to establish clear expectations and boundaries. Still, more technical considerations also need attention, such as tax requirements, dealing with misconduct correctly, and proper communication.

Here are some helpful insights you should consider when hiring a family member as a member of your staff:

Always start with a plan

Considering the usual challenges of your business operations, it is always crucial to set clear expectations for all of your employees. When working with family members, you must start with establishing proper communication on job descriptions, responsibilities, functions, and key performance indicators. Let them know that the chain of command should always be honored and that they will be treated equally as the next regular employee.

For most employees, you should know that nepotism isn't the most acceptable way to run a business. It can breed animosity if they see little favors you extend toward your family member, which can lead to toxic relationships in the workplace. You can prevent this from happening if you ensure that all of your employees, including those who are family, receive the same perks or disciplinary actions as everyone else. Make sure you justify a family member's position and compensation by meticulously reviewing his resume and performance record.

Many small business owners mistake choosing family members over the most qualified candidates for the job. Even though they feel confident in a family member, not reviewing one's qualifications can quickly backfire and ruin your operations. Always see that your family member has the skills and expertise required to accomplish the work properly before you let them sign on the dotted line.

Considerations when hiring a family member

Whether you should hire a family member or not depends on several considerations since most family relationships are considered by many as personal rather than professional.

Carefully consider your motivations regarding hiring a family member and draw out how they can add value to the job rather than just giving them one because they need it. Of course, you'll have to consider just how close you are with the particular family/employee and list down possible instances that your relationship can get in the way of how you run the business. For most family businesses that thrive, the critical factor is having faith that every family member is treating the company seriously. On the other hand, working with a family member also involves risks in your personal relationships when misconduct and the need to discipline arise.

Aside from thinking about your business goals, talk to your family member/employee about his career and professional goals and how you can work out a win-win situation that is fair to everyone to foster a positive work environment. Sharing your objectives with everyone so they can get on board with the plan is always an excellent idea that works with most employees. While hiring a family member in your company staff is legal, you should still clarify stringent rules that avoid preferential treatment in your employee handbook so everyone's expectations are met when discussing nepotism in the workplace.

Tax matters among family

Now, we come to more specific scenarios regarding hiring family members and the corresponding tax requirements for each. For example, engaging those who are under the age of 18 and are still considered minors are subject to labor and tax laws. They should not operate any heavy or dangerous machinery and if you ever hire a minor, make sure that family members have at least reached the age of 15. Different states may have instituted specific laws about hiring minors, so carefully review them along with existing federal rules.

As for the minor's salary, it's best to carefully review how you'll issue payments and withhold payroll taxes according to the Internal Revenue Service (IRS) rules for your business or partnerships. If you are listed as a corporation, salaries for minors are subject to payroll taxes. On the other hand, if you are listed as a partnership, those salaries can be waived if the minor is the child of both partners.

Suppose you employ your husband and wife within your company. In that case, deductions from FICA and income taxes from their wages are required, provided you have registered them as co-owners who are given a subsidy of your business. Observe proper self-employed tax laws if this is the case with your company. Remember, filing as a qualified venture regarding your tax reporting is always easier.

When hiring any other adult family member, you'll need to complete a W-4 form and withhold federal income taxes as provided. FICA taxes owed by your company may not take your family member's salary into account, as well as when you compute unemployment taxes and employee's compensation. A few things to consider are their overtime pay, which should always be the same as the rest of your employees, and their eligibility for similar benefits, including paid time off, sick leaves, and health insurance.

Family businesses can work if…

Provided you have meticulously planned how to run a business with some of your family members on board, there are many advantages such an arrangement can offer your business and loved ones in the long run.

In a more intangible sense, establishing trust and dedication is very important before you hire them. Getting children to join the fold and learn the ropes of business early makes for a good training ground for them. Best of all, there's a good chance you can save money on hiring tax accountants, mobile phone plans, or other such operational expenses that offer discounts for families.

The trick is to consider all your requirements and options and always play fair when working with your family. If you do, profits can soar with a stronger team by your side.


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