The benefits of hiring your children in your small business
Monday, December 19, 2011
Putting kids to work at home can provide valuable lessons for them and much needed help for you. They can start with the simplest tasks-filing, stuffing envelopes or cleaning up the home office-and ease into more responsibilities as they mature.
Plus, working for parents could be the only job your kids can
get. As a general rule, child labor laws prohibit children under 16
from working in non-agricultural jobs.
However, you're allowed to employ your own kids, as long as the job is not in a hazardous occupation. Paper cuts notwithstanding, you probably qualify.
- Focus on skills and responsibility. Employing your children
provides a wonderful opportunity to teach real-world skills such as
customer service, software proficiency, time management and pay
rate negotiations. (May the force be with you on that last one!)
Good work habits can be rewarded and bad ones corrected at
In addition to teaching work ethic, the income earned by working for parents gives children some control over their spending-and some relief for you. Requiring kids to use their "paycheck" for certain things teaches them to live within a budget.
- Protect the relationship. There is a big difference between
hiring your child to teach responsibility and expecting them to
replace an older employee. If you have enough work that you've
considered taking on a regular part-time employee or a college-aged
intern, that volume of work is probably not going to get done by
your fifth-grader. Not good for business. On the other hand, if you
don't have enough work for a child to do, you may find yourself
making up tasks to fill their time or paying them to do things
around the house you wouldn't normally pay for. Not good for
Make sure expectations are realistic and roles and responsibilities are clearly defined.
- Mind your taxes. Did you skip to this heading first? A lot of
parents are looking for a tax break, and there are plenty, as long
as you follow the rules. Tax advantages of employing your children
Untaxed income: If a child's earnings are less than the standard deduction, no tax is due. For a child who can be claimed as a dependent on his or her parent's tax return, this can be as high as earned income plus $300-all the way up to the regular standard deduction ($5,800 for 2011).
Lower income tax rate: Even if a child makes more than the allowable standard deduction, his or her excess earnings will be taxed at the child's rate, which can be significantly lower than the parent's rate.
FICA & FUTA: If you would usually hire someone other than your child, you can save a lot in federal taxes by employing your kid instead. If your child is under 18, you may not be required to pay Social Security, Medicare or federal unemployment insurance taxes. This represents a 15.3 percent savings on labor costs. Certain limitations apply.
Tax savings are real. Keep good records and make sure the child actually is earning the compensation. The IRS is picky, so it's worth the investment in a consultation with a tax professional.
- Take the plunge. As the child's employer, you won't have to
worry that his or her work schedule might conflict with the big
test or the dance recital. Under your supervision, it is less
likely the child will be distracted by the job at the expense of
Start them young, pay them well and treat them fairly so that when they are finally old enough to get that minimum wage job at the mall, they might choose your gig instead.
And if they get a paper cut, you'll be right there with the ointment and bandages.