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Hiring Your Kids

Is "All in the Family" a Good Idea?

By Joan E. Lisante

You need help. The invoices are piling up; phone messages taking three days to answer. But just the thought of trolling for and interviewing administrative assistant candidates makes you want to crawl back into bed.

A quick look around your home might yield some prospects you hadn't thought of before: your own kids. Aside from school, homework and extracurricular activities, they may have spare time that can convert to help for your business.

Is this a good idea? You have to ask several questions before deciding whether to hire your own flesh and blood or look elsewhere:

• Is your child mature enough to take on the responsibility?
• Does he or she truly have enough time to do the job?
• Is the type of work they'll be doing allowed under the Fair Labor Standards Act?
• Will hiring this person give you a tax advantage?

Tax Advantages

Aside from knowing who you're hiring, tax reasons are a prime incentive for hiring your own kids. Just how many are there? For starters, you don't have to pay Social Security and Medicare taxes (FICA) for work performed by someone under 18 working for his or her parents. Another freebie: no unemployment tax (FUTA) if the employee is the owner's child, and under 21. Since most kids use the money to purchase things (clothes, stereos, college tuition) parents would spring for anyway, this is a smarter way of paying, since less is lost to taxes.

Kids are virtually always in a lower tax bracket than parents, often in the 15% as opposed to 25% and up, so less salary is forked to the government. And there's a threshold amount of wages a minor can earn tax-free (now around $5,000) before the 15% even kicks in.

What Can They Do?

How Hiring Kids Can Save $$ Here are more details on hiring family members to financial advantage: To qualify, you must be a sole proprietor, or have a partnership consisting of just you and your spouse. You can also have a limited liability company. Children can open an IRA and contribute up to $3,000, or as much as they earn. The cost of health insurance coverage normally decreases when you cover family members as employees. And you can write off more premium costs. Have several family members who could help? Spreading wages over a number of people, especially children, increases the number of people taxed in lower brackets. Result: less tax paid overall.

Obviously, the type of work for which you hire your child has to match their ability. Younger kids might sort mail, stuff envelopes and other simple tasks, while older ones could take on jobs like data entry or handling customer correspondence. Keep pay rates reasonable, and keep track of time as carefully as you would with a non-family member, paying wages on some kind of regular schedule.

Is there work for which you definitely can't hire someone under 18? Yes—lots of it. The Fair Labor Standards Act, a federal law, outlines what types of jobs kids are allowed to do, and at what ages. The point of the law is to protect young workers, so it speaks to issues like type of work, breaks and maximum hours per week. Many states add still more restrictions to the federal law.

Restrictions are looser for kids working in the family business, provided it's not manufacturing, or on the "hazardous occupations" list. The U.S. Department of Labor lists these occupations in its "Youth and Labor" section. One hazardous job left off the list: farming, both family and commercial.

Once a kid is 16, restrictions on hours worked lift. But certain dangerous jobs are still disallowed, particularly those which require kids to operate machinery like power tools or cars. At 18, federal oversight of youth employment goes away, but some states still weigh in with restrictions on employing youth between ages 18 and 21, so it's best to check your state law if you have questions.

Resources:

United States Department of Labor
200 Constitution Ave., N.W.
Washington, D.C. 20210
www.dol.gov
1-866-4-USA-DOL

www.findlaw.com
Find laws on hiring minors and other family members;
searchable on a state-by-state basis.

Joan E. Lisante is a Fairfax County, Va., attorney who writes frequently about legal and consumer issues.

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