Employing family members
Identify the benefits and challenges of employing family members.
Around 90% of companies in Northern Ireland are classed as 'family-run' and family-run businesses in Northern Ireland employ around 400,000 people.
Many businesses employ family members but it is important to recognise that there are pros and cons to doing so. This guide outlines what to consider before employing family members, employing your partner, and employing young family members. Other issues to consider are family employees and health and safety and family employees and tax requirements.
Paying employed family members
You should note that a family member and/or relative must be hired to do real work at a commercial rate that is in proportion to their role. HM Revenue & Customs (HMRC) may well question in detail any very high payments for simple work. In addition, HMRC may ask for evidence of payment to any family member, so it is essential that full records of all payments made are kept.
This guide also looks at how you can avoid common pitfalls helping you to minimise risks of employing family members and preventing communication breakdowns with family employees.
What to consider before employing family members
How to ensure that a member of your family is the right fit for a job role.
There are a few things to consider before deciding to employ a member of your family. The following checklist should help you decide if they are suitable for a position.
Checklist to help you decide on employing a family member
Before deciding on employing a family member you can ask yourself the following questions to help you make the right decision:
- Are they suitable for the post? Do they have the skills and competencies required? Don't create jobs exclusively for family members, ie jobs that would not otherwise exist.
- Do they want the job?
- Do they have relevant previous experience outside the business? What useful skills will they bring to the role?
- Are they willing to earn the respect of their colleagues rather than just expecting it because of family connections? Can they show equal respect for non-family colleagues?
- Can you be objective when promoting staff and only promote the best person for the job whether they are a relative or not?
- Can you put business objectives above family politics?
- Will you be able to apply the same pay policy, and disciplinary and appraisal procedures to both family and non-family workers?
Potential of discrimination
Beware of indirectly discriminating against non-family members. See how to prevent discrimination and value diversity.
Recruiting process
Your recruiting process must be fairly applied eg you might consider an open competition for posts to ensure you choose the best person for the job if the family member would not be the best candidate. You should consider safe proofing the selection process as far as possible to minimise risks of discrimination claims ie select the interview panel carefully. See recruiting staff.
Minimising risks of employing family members
How to avoid the employment of family members creating problems for your business.
There can be risks to a business if it employs family members.
Challenges that can arise when employing family members
Alienation
Non-family members may feel alienated or excluded.
Missing out on experienced staff
Failure to recruit and retain experienced outsiders who could contribute effectively to the business. The failure of business plans if senior management does not possess the right skills and experience
Discrimination claims
Claims of discrimination against non-family members - see how to prevent discrimination and value diversity.
Poor succession planning
Succession planning is not being adequately managed if non-family members or interests are excluded or inappropriate family members or interests are automatically included - see succession planning and business transfer.
Stifle innovation
If you don't recruit from a diverse pool of talent you are minimising the opportunities for innovative growth in your business. A diverse range of employees can bring many benefits such as new ideas, different approaches to problems, and more efficient ways of working.
Wasting resources
Wasting money by paying a family member to do a job they are not suitable for and/or by giving them an undeserved promotion or pay raise - see staff pay and benefits for family members.
Not separating family and business issues
Domestic issues are being brought into the workplace, preventing effective communication on business matters.
Workplace bullying
Bullying or harassment of other staff by family members - see preventing bullying and harassment.
Minimising risks when employing family members
To avoid the employment of family members creating problems in the workplace, you should:
- apply any appraisal system or other company policies and procedures equally to all staff - see managing staff performance
- have senior positions held by a mixture of both family and non-family members
- make sure that you do not give family members preferential treatment in relation to, for example, promotion or pay, as this may give rise to potential discrimination complaints
Remember that if you don't require family members to bring outside experience to your business, you cannot reasonably expect non-family members to do so.
Preventing communication breakdowns with family employees
How communicating with family employees may differ from communicating with non-family ones.
If you employ a family member it is sometimes easy to ignore the importance of open and regular communication. A typical response to a difficult scenario is to avoid dealing with it rather than confront a situation or an issue early on.
This creates a breeding ground for bad feelings and resentment that could destabilise the business' operations and put your family relations at risk. It can also create an unpleasant working environment for non-family staff and could encourage them to take sides.
Best practice in communication
You may find it useful to assess whether or not your management style encourages a culture of listening and consensus.
You might achieve this by:
- finding out family employees' different goals and needs, and then seeing if you can coordinate them - you could ask an independent party to do this
- creating opportunities for views and concerns to be heard
- addressing those views and concerns
- seeking consensus for decisions, whenever practical
- encouraging an open, sharing atmosphere rather than a blame culture
See further guidance on engaging with staff.
Employing your partner
Your legal responsibilities when employing a partner are the same as for any other employee.
If you employ your partner, ie your spouse, civil partner or (co-habiting) partner, you should decide in what type of role you want to employ them, ie, will it be a managerial or non-managerial position?
As they are an employee, you must ensure that you deduct income tax and National Insurance contributions from their pay through the PAYE (Pay As You Earn) system.
It's a good idea to:
- get advice on their terms and conditions of employment - see the written statement
- arrange for your partner to make payments into a pension scheme
- get advice on ways of minimising your own tax bill and/or that of the business while complying with HM Revenue & Customs (HMRC) rules
For advice on employing your partner, you could contact a tax specialist - see choose an accountant for your business.
Employing young family members
The rules on age, working hours and type of work for young people.
It's common for businesses to employ young family members for part-time work or during school holidays.
Employment rights for young family members
Young family members have most of the employment protection rights as other young people and children.
For example, you can't employ young people:
- for most businesses, if they are under 13 years old, except in certain professions, eg, in performance, modelling or in sporting activities
- in any industrial undertaking, for example on a building site or in a factory
- in a pub
- in a betting shop
- during school hours or continuously during the year
There are also laws on working hours, work breaks, and the type of work for those under school-leaving age and those aged 16 and 17 years old. See employing children and young people.
You must give employees aged 16 and 17 years old, who did not reach a certain standard of education or training, the right to reasonable time off with pay to study or train for a qualification that will help them reach that standard.
The national minimum wage (NMW) for young family members
You do not have to pay the NMW to workers in the family business, provided they are members of your family and share your family home.
See family, friends or neighbours and the national minimum wage.
Local laws
There may also be additional laws that apply to your business, such as the number of hours in each day or week, and the times of day, that children can be employed. The will be able to advise you on these.
Insurance for young people
If you employ family members who are under 16 years old, you must ensure that your employer's liability and public liability insurance policies cover young workers and volunteers under the age of 16.
Family employees and health and safety
Protect the health and safety of family and non-family members at work.
As an employer, you have a duty of care towards all people who work for you or come onto your business premises.
If you employ younger family members, remember that they may be inexperienced in operating certain types of equipment or facilities, and may be unaware of health and safety hazards. See employing children and young people.
Health and safety legal requirements
Legal provisions for young workers' safety include:
- carrying out a health and safety risk assessment or reviewing existing arrangements before employing them
- assessing psychological factors, eg, maturity, awareness, and the need for extra training/supervision
- assessing physiological factors, eg, strength, fitness, and the need for additional protection
- providing information to parents/guardians about risks and protection measures
See our section on health and safety made simple for business.
Older workers may need refresher training in health and safety matters or to improve or update their skills. You should also consider vulnerability to exposure from excessive lighting, glare, and heat.
All employers must carry out a health and safety risk assessment. Those with five or more employees must record significant findings.
Family employees and tax requirements
You must report tax, benefits, and expenses for all paid workers.
Make sure that dividends paid to family members who own shares are clearly distinguished from their pay. Dividends are not usually dealt with through PAYE (Pay As You Earn) system and are not subject to National Insurance contributions (NICs).
Dispensation
You may ask for a dispensation from HM Revenue & Customs (HMRC) not to report expenses or benefits that are not taxable.
The dispensation also means that the expenses or benefits do not count as earnings for NIC purposes. See further guidance on .
Regardless of whether or not they are family members, you must operate a PAYE system for all your paid workers - see PAYE and payroll for employers.
You must also keep records on pay and deductions and, for national minimum wage purposes, details of working hours and other appropriate information - see National Minimum Wage and National Living Wage records and reporting.