Many small business owners consider hiring family members during the summer to help with seasonal work or routine tasks. It can be a practical way to handle a busy period while keeping work within the family.
However, hiring a spouse, child, or other relative still involves important bookkeeping and payroll responsibilities. Understanding the basic rules helps ensure that wages are handled correctly and properly recorded in your business records.
Below are several key considerations to keep in mind before hiring a family member.
Make Sure the Work Is Legitimate
Family members who work for your business must be performing real work that supports normal business operations.
The tasks should be clearly defined and appropriate for the business. Wages should also be reasonable for the type of work being performed.
When work and compensation are legitimate, the wages paid can generally be treated as a normal business expense.
Maintain Proper Records
Good recordkeeping is important whenever someone works for your business, including family members.
Maintain documentation such as:
- Job descriptions
- Hours worked
- Tasks performed
- Payroll records
- Method of payment
Keeping clear records helps support wage deductions and ensures your financial records remain accurate.
Understand the Tax Rules for Family Employees
The tax treatment of wages paid to family members depends on the relationship and the business structure.
Children Under Age 18
- If the business is a sole proprietorship or a single-member LLC taxed as a sole proprietorship, wages paid to a child under 18 are generally not subject to Social Security, Medicare, or FUTA taxes. – This rule typically applies only to biological or adopted children.
Spouses
- Wages paid to a spouse are generally subject to Social Security and Medicare taxes, but are not subject to FUTA tax.
Other Family Members
- Relatives such as siblings or parents are usually treated the same as any other employee. Standard payroll tax rules generally apply.
Payroll Requirements Still Apply
Even when hiring family members, normal payroll responsibilities usually still apply.
This may include:
- Registering as an employer if necessary
- Withholding appropriate payroll taxes
- Filing payroll tax forms
- Issuing Form W-2 at year-end
- Maintaining payroll records
Handling payroll properly helps ensure compliance and keeps your financial records organized.
Avoid Common Mistakes
A few mistakes are especially common when businesses hire family members.
Paying without documentation
- All wages should be properly recorded and reported, regardless of how payment is made.
Skipping payroll setup
- Even temporary or seasonal workers should generally be paid through a proper payroll system.
Ignoring youth employment rules
- If the employee is under 18, federal and state labor laws may restrict the type of work and number of hours allowed.
Final Thoughts
Hiring family members can be a helpful way to manage seasonal workloads or handle routine business tasks. When handled properly, it can also provide valuable work experience for younger family members.
The key is to treat the arrangement as a legitimate employment relationship — with proper records, reasonable pay, and accurate payroll reporting.
Following these practices helps keep both your bookkeeping and tax reporting clear and compliant.