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Family Members as Employees

Family Members as Employees

Dear Advisor:
I started my business about five years ago. In the beginning, my two children (now ages 13 and 16) lent a hand now and then as part of their family chores, but I’m starting to hear grumbles about being paid. When do family members become employees? Is there some requirement that I start paying them minimum wage? 

One of the more difficult family business quandaries is when family members become employees. In your case, I sense that you have already made your kids employees in their minds. However, you are not treating them completely like employees. By doing this, you are affecting the set of assumptions, values, credibility, and commitment that all of you have in the family business system. It is precisely this sort of confusion that leads to the heart of most family business problems, when years later, families continuously blur the boundaries of family, ownership, and management. I am afraid that you have taken a few steps toward blurring the lines among these three distinct systems, and you could be heading for trouble unless you apply some simple concepts to this issue. Let me explain by going back in time.
Five years ago, your children were 8 and 11, respectively, and perhaps it was fine to have them help out as part of their chores to get introduced to the family business. But now they are fast approaching their adult years, and you are presenting a confusing scenario that they do work but not be paid for it. The 16-year-old has friends who have part-time jobs and get paid for their work. Your son or daughter works in the family business and puts in real hours, but does not get paid for his or her efforts because you are evaluating the work, and it will most likely not meet your expectations. Once again, it is a fairness issue that can only lead to ill feelings down the road. Family chores are under the auspice of the family system, but now that you have expectations of family chores as being a job it becomes an issue for management. You must clear up these boundaries by reestablishing that family chores are squarely a family responsibility and that working in the business is a job that carries a higher level of responsibility and consequences.
While I am certain that you pay for things your children need, you are missing an excellent opportunity for your kids to learn about work ethic and the importance of earning a paycheck. Their first experience in the real world of work is the best time to teach them about money. Furthermore, in my experience, where parents have children working in the business and not getting paid (this is how my father treated me and his father treated him), a pattern develops that many are unaware of: You are using money to control your children. This wedge will often turn every need for money into a negotiation exercise that is a zero-sum game. Place the responsibility in your children’s hands and let them learn about earning, saving, spending, and the consequences of their choices.
While you should always follow the law governing employment practices, I realize that family businesses often figure out ways to get around those rules. But more importantly, you should take this opportunity to do what a professional family business would do. First, establish a job description that includes salary, job expectations, and the name of a supervisor. Second, make sure that this supervisor is not a family member. Third, a regular performance evaluation should be conducted to give the son or daughter feedback on his or her performance. Starting a tradition of regular performance evaluations with family members is extremely valuable in the long run, since it will lead to honest conversations and will chart a course for continuous improvement. If you do these three simple things, they will not only reduce day-to-day conflict, but help prevent future problems.



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