Three key areas to consider.
Some of the most successful businesses we know today were started by family members:
- Aldi supermarket chain started as a corner shop run by brothers Theo and Karl Albrecht
- Walmart was founded in 1962 by Sam Walton. His brother Bud was an early business partner, and his sons Rob and John held leadership positions later down the line.
- The son of Sir James Dyson has been named as successor to the family business having led the companies diversification into lighting products.
Whether you are just starting out or expanding your business, it’s a natural decision to consider how family members could help you. After all, you know them well enough to understand their skills and abilities, and also their quirks! When recruiting a stranger into the business, it can be a steep learning curve.
Employing a family member, whether a partner, spouse, child or other relation, will require you to do some homework first. You will need to check legal requirements from an employment law perspective and where you stand with HMRC in regards to tax.
To help you get started, here’s the key areas you need to consider:
Who can you employ into your business?
In short, anyone you are related to! If you have a good relationship and they have the skills that your business needs, why not consider bringing them into the business to support you? Whether your business is a sole trader or limited company, you can employ family members.
Family members of all ages can be considered. When it comes to those who are 16 or under, you will need to consult with an HR professional first. There are specific rules in place as to whether they can be employed.
Do you need to register as an employer with HMRC?
As soon as you employ someone to work for you, and you pay them a salary, then you are required to register as an employer with HMRC. Whether they are a family member or not, the rules are the same.
There are some, small, exceptions. If the family member is going to be a director of the limited company and paid via a dividend only, then registration as an employer is not required. If they are to be paid a salary, then yes you will need to register as an employer.
If you do register as an employer, you are also responsible for submitting PAYE records and annual returns.
How much can I pay my family?
Anyone you employ is entitled to a fair and reasonable rate of pay. Ordinarily, the National Minimum Wage (NMW) and National Living Wage (NLW) rates apply to anyone you employ but there are some exceptions.
If the family member lives inside the family home (for example your spouse or children) then the NMW rates do not have to be applied. The rate of pay you negotiate with them is up to you – remember the phrase ‘a fair day’s wage for a fair day’s work!’
If the family member does not live inside the family home, you will need to pay at least the NMW, or the National Living Wage if they are 21 years old or over. The NMW rates were last updated in April 2024 and you can find them here.
Don’t forget to factor in salary deductions for anything connected to the job or through salary sacrifice. If you fail to calculate the minimum wage correctly, you could be underpaying your workers. Also, that family members unless directors are NOT exempt from auto-enrolment.
The risk of getting it wrong
Employing family members into your business might seem like an easy win, and in many cases it will be a positive decision that gives you great support. However, if you aren’t mindful of the legal and financial aspects that go with it, you could put yourself in the spotlight with the authorities:
- You could be prosecuted for employment law breaches
- Receive fines and penalties from HMRC
- Potentially damage the reputation of your business with customers
- Harm valuable family relationships
We’ve noticed that HMRC is paying close attention to employers falling foul of National Minimum Wage rates. It won’t matter to them whether this is a member of your family or not – failure to pay the correct minimum wage is an offence they won’t take too kindly to. If you have spotted that you are underpaying, you must correct it as soon as possible through future payments, including any back pay.
Accounting Clarkes is a family-run business so we understand the trials and tribulations of working with family members. We can speak from experience and help you to decide whether employing a family member is right for you. Call us on 01252 612484 to tell us about your business and what you are looking to achieve in the future.
