The benefits of hiring your children in your small business

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.

  1. 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 home. 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.
  2. 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 parenting. Make sure expectations are realistic and roles and responsibilities are clearly defined.
  3. 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 include: 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 0-all the way up to the regular standard deduction (,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.
  4. 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 schoolwork. 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.

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