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Hiring Family Members: Carefully Weigh the Risks and Rewards First

As the owner of a closely held business, you may have opportunities from time to time to hire members of your family to work for your company.

Due to the economic downturn and resulting high unemployment rate, many owners have been asked by family members recently whether there might be job opportunities for them in their business.

There can be both rewards and risks involved in hiring family members. So regardless of whether it’s your spouse, children or extended family members like aunts, uncles or cousins, you should be extremely careful about making such a hire.

The fact is few other business decisions have as much potential for conflict, misunderstanding and long-term damage – to both your business and your family relationships – as this one. Because no matter how well you handle it, hiring family members has the potential to create the perception of nepotism with your other employees.

Owners sometimes over-compensate for this by holding family employees to a higher standard of performance and/or behavior than non-family employees. But this is unfair to the family employee, who will probably resent being treated this way and may begin to poison the work environment with poor performance and a bad attitude. This, of course, may carry over into the familial relationship and cause damage that ripples out and touches other family members outside of the business.

A Family Employment Policy
Experts say that before you even consider hiring family members, you should create a formal family employment policy that establishes rules and guidelines to govern such hires. The policy should cover a wide range of areas with regard to family hires, including these:

  • Expectations and job duties – A formal written job description should exist for every position in your company, including those filled by family members. This should detail the specific tasks and responsibilities involved with the job, as well as your performance expectations. Also describe where the job fits in the company’s employment hierarchy (e.g., entry level, middle management, executive) and how the employee can achieve promotions and raises.
  • Rate of pay and overall compensation – Compensation for family employees should be based strictly on the fair market value of their job, or, in other words, what you would pay anyone else for the same position and similar job responsibilities. Paying family members an “insider’s bonus” or higher than market salary, or providing other types of additional compensation that aren’t merit based, may cause resentment (and perhaps even litigation) among other employees.
  • Supervision and lines of reporting – You must walk a fine line here. On the one hand, it’s often preferable for family employees to report to a non-family manager or supervisor in order to allow for more objective feedback, as well as to help avoid appearances of preferential treatment. But this can put the non-family manager in a tough spot if he or she feels intimidated or threatened in having to supervise the owner’s son, daughter or spouse.
  • Required education, skills and experience – These should be no different for a family member than they are for any other employee. Objectivity is crucial, and you must also be careful to write the job description and its requisite education and experience to fit the job itself, not a family member you think you want to hire for the position.
  • Separation from the company – It’s better to plan for this ahead of time than have to deal with an awkward separation later if the job doesn’t work out. Your policy should spell out in detail the separation protocol, including steps that may lead to the family employee’s dismissal, whether there may be a probationary period before dismissal, and possible severance pay.

Start Off Slowly
One way to possibly avoid some of the potential pitfalls of hiring family members is to start them out on a trial basis – maybe three to six months, for example. At the end of this time, either you or the family employee can terminate the employment with no strings attached if either of you isn’t happy with the arrangement. This provides an “out” for both sides if things aren’t working out, hopefully without causing permanent damage to the family relationship or the business

In the end, the decision whether or not to hire a family member needs to be based on just one thing: Is the family member the best person for the job? If so, the rewards may outweigh the potential risks and lead to a long and mutually beneficial arrangement. If not, both you and your relative will be much better off in the long run if you “just say no” to the hire right from the start.