Hiring your own children – whether employed part-time in the mailroom or full time managing your operations – can be an adventure. But is it always the best idea?

It can be beneficial for both parties

As an employee of your business, a school-aged child can develop a strong work ethic and money management skills. Summer income may be used to pay for school clothes, music lessons or sports camps. And hiring an adult child may be less risky than bringing a stranger on board. After all, you know your kid’s capabilities and commitment level.

Tax advantages are another positive of hiring your child. For instance, your child can earn up to the standard deduction for the year and pay no income tax. In a sole proprietorship or family partnership, you won’t be required to withhold Social Security or Medicare taxes if the child is under age 18. But if the IRS audits your firm, you’ll need to show that your kid’s wages were reasonable in relation to the jobs performed.

It may not work for everyone…

In some cases, hiring your children (especially adult kids) may not be sensible. Suppose your recent college graduate takes advantage of their status as a family member to take extended lunch breaks. If given (or perceived to be given) preferential treatment, the morale of other employees may suffer. And if you let your child go, you may end up with a strained family relationship.

If you’re thinking about hiring your kids, consider the following suggestions:

  1. Determine if they’re actually qualified for the role. They need to fit your company and contribute to its success. Your adult child whose sole work experience is babysitting probably shouldn’t be ushered into top-level management.
  2. Consider a trial basis. Employing your child for three or six months on a probationary basis will help both you and your child determine whether the role is truly a good fit.
  3. Use a written contract. Don’t rely on a handshake or verbal agreement. Specify duties, responsibilities, and wages in a written contract.
  4. Follow the chain of command. Your child should report to someone else (not you) for their work schedule, performance reviews, compensation, and bonuses.
  5. Reconsider being your child’s first employer. Think about letting your child develop skills and a professional identity at someone else’s business before working for you. It may be helpful to learn to function as a valued employee somewhere else first.