Have you ever considered hiring your son or daughter to work for your small business? While many business owners might balk at this idea because they don’t want to be accused of nepotism, hiring your kid to work at your office offers a number of personal and financial benefits. In episode #119, Gene Marks and Elizabeth Larking discuss the advantages of hiring your child as an employee.
Executive Summary
0:22—Today’s Topic: Is it a good Idea to Hire Your Kid to
Work at Your Small Business?
2:10—Due to recent reforms in tax deduction laws, you could
conceivably pay your child up to $12,000 to work for you and still qualify for
a deduction; this means your child would have a taxable income of zero.
4:20—While there is no required age minimum for a child to start working, your kid should at least be in middle school before you hire them.
5:01—Allowing your kid to work with you not only instills a strong
sense of work ethic in them, but it also allows you to spend more time together.
(However, be sure that your don’t offer them any special treatment.)
5:27—While it doesn’t make a significant difference whether
you hire your child as a full-time employee or an independent contractor in
terms of tax deductions, you need to be aware of the different legal details regarding those
positions.
6:05—There is no financial advantage to calling the child’s position
an “internship.”
7:05—As a courtesy, you may want to let your current
employees know that your son or daughter will be working alongside them.
9:41—Gene advocates offering paid time off to do charity
work as a means of attracting potential employees.
Links
Transcript
Elizabeth: Okay this episode is called “Should You Hire Your Kid”?
Gene: My kid? You don’t want to hire my kid. Stay away from hiring my kid. End of episode. [laughter]
Elizabeth: So you have three kids. There’s one of them you would hire, right?
Gene: Ya, I rank my kids every week. My daughter is going to vet school. I would hire her right now. She’s number one.
Elizabeth: Really?
Gene: They’re all doing good. Let’s not talk about my kids. It’s not fair. They’re all doing fine.
Elizabeth: I thought you had one that was an accountant.
Gene: Ya I have an accountant as well and I have an engineer.
Elizabeth: Oh my gosh. An accountant, an engineer, and a vet. Alright cool.
Gene: All certified by the state.
Elizabeth: So Gene recently wrote an article for Small Biz Ahead and it was talking about, you know, it’s coming up on the holidays and you need some extra work in the office. And you’re thinking maybe I should hire a temp, but you’ve got a teenager. Or maybe it’s right before school vacation and they want a job for a couple weeks.
Gene: Right.
Elizabeth: Or maybe they’re a teenager and they want a part-time job and they want to come to your office two or three days a week. Should you hire a temp? Or should you hire your kid? A lot of times – I know a lot of people would say I want to hire a temp because I can actually manage a temp. I can tell them what I want them to do and what I don’t want them to do and that gets a little trickier when it’s your kid. But you came up with a bunch of reasons why it’s actually a really good idea to hire your kid. And we’re gonna talk about that after we hear from our sponsor.
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QUESTION: Should You Hire Your Kid?
Elizabeth: Okay, we’re back and Gene is going to give us his reasons why it’s probably a really good idea to hire your kid.
Gene: So let’s just talk about straight financial reasons, okay? And then we’ll get into some of the ethical, whatever reasons. Financially it makes a lot of sense. Right? I mean here’s the deal, if you hire your kid, because of tax reform, the standard deduction went up a lot.
Elizabeth: It’s like $8,000 now?
Gene: Yeah it’s actually individually it’s $12,000 now. For a married couple filing jointly it’s $24,000 but it’s individually $12,000.
Elizabeth: Okay.
Gene: Which basically the standard deduction means that whatever income you made, you can then take this $12,000 standard deduction against it and then whatever’s left over is what’s taxable, right? Think about it, if you’ve got a kid and whether you have to file a tax return or not, because that also may be up in the air, you could pay your kid up to $12,000. That kid can take a deduction of $12,000 against it, nets it to zero taxable income, which means the kid doesn’t pay any taxes and you get a tax deduction for it at the same time. That makes a lot of sense to do.
Now there’s some other things. You know, once you pay your kid, you want to take the paycheck out of their hands and put it into a savings account, right?
Elizabeth: Okay, so when Gene wrote this article and we published it on Small Biz Ahead a couple of months ago and a lot of people questioned that. If the kid works, shouldn’t they get to keep their money?
Gene: Well that’s between … I’m not gonna say how you raise your kid, okay? That’s completely up to you.
Elizabeth: But you would take the money.
Gene: I would. What I would do, I would actually be taking some of the money, not all. Maybe I would take 80% of the money.
Elizabeth: Leave them some ice cream money.
Gene: Yes, whatever they’re going to use it for and I would take 80% of the money and put it into a 529 plan. Which is, after tax you can put money in there and it grows tax free for college. So you can start a little college fund with it as well and you’re saving money on taxes while it’s growing over time as well. So that way, you’re saving money on taxing your business, your kid’s not getting taxed for it and then they’re taking that same money and they’re putting it in tax free into a fund that will grow that they can use for college and higher education expenses. Or even, actually, private school as well.
So there’s all these tax advantages for doing it. Now, some people then also question, how old does your kid need to be?
Elizabeth: I think they need to be 15, right?
Gene: Yeah. You’re not gonna put your six year behind the phones, you know what I mean? Or your eight year old driving a forklift in the warehouse. So there’s no actual requirement, it has to be a reasonable age. That’s what it is.
Elizabeth: Really?
Gene: Yeah. I generally tell clients middle school age. You know what I mean? 12, 13, 14, about to start high school.
Elizabeth: Yeah, I started doing filing for my dad’s insurance agency when I was like 11 or 12.
Gene: Yeah and they’re still cleaning up that mess. I wanted to tell you, your dad was explaining it to me recently.
Elizabeth: I do have slight dyslexia.
Gene: Yeah, you learned an important work lesson and that’s good. But whatever you decide to give your kid at that age and as they grow older, they learn the work ethic, you get to spend a little time with your kid, which is very nice, and you want to treat your kid as an employee so there shouldn’t be any special whatever.
Elizabeth: That’s kind of what I wanted to talk about. Have you ever hired any of your kids?
Gene: Yes and no. I mean I’ve hired them to do database work for me. So I have done it. But I have not made it a big deal in my business. But then my business is more of a technology business. So it’s different.
Elizabeth: So does it matter if you’re hiring them as a full time employee or an intern or a contractor to get those tax …
Gene: Yes, actually you said the magic word, which is contractor.
Elizabeth: Okay, then they wouldn’t get those tax …
Gene: I mean, it depends. I mean, if you’re hiring them as an employee, a full time, part time or even a contractor, it’s a similar concept. I mean you’re making the payment, you’re taking the deduction for it and then they’re getting the income and they get the standard deduction.
Elizabeth: So they have to be on your payroll?
Gene: Either your payroll or they could be an independent contractor. It’s just that with an independent contractor you just have to be careful about the independent contracting rules.
Elizabeth: Okay. Do you think it would be better to hire them and call them an intern?
Gene: No. I see no advantages to calling a kid an intern. I mean internships are generally, there’s no financial advantage.
Elizabeth: Okay.
Gene: The only thing is how your kid’s gonna be putting that on their resume. So yes, you could intern at Goldman Saks or be an intern at The Hartford and that looks really good on your resume. Being an intern at J&G’s Pizza Parlor, I’m not really sure people really would accept that.
Elizabeth: Okay.
Gene: So no, I don’t think you have to get caught up in the title for it, is all. I just think it’s a great way to motivate your kid. I think it’s a great way to teach them work ethic. I think it’s a great way to spend some time with your kid as well, as long as you’re treating them fairly with all the other employees. You can save money on taxes, kid doesn’t have to pay any taxes, you can put money away for college and summertime, Christmas time, after school, it just kind of makes sense if you’ve got a business that’s set up to do that. I highly recommend it.
Elizabeth: Do you think you need to prep your other employees for like, “This is my kid.”
Gene: It’s a good question. It depends on the culture in your company. I mean, it just depends on the culture of your company. I don’t think, just to make it easier for your kid, I don’t think your kid just showing up out of the blue … I have some clients where the kid just started working there and nobody really knew who the kid was and they’re like, “Oh it’s the boss’s daughter.” I think it’s nice, as a courtesy, to say, “Hey, my daughter’s going to be working here after school, she’s going to be doing this. You know, just give her a shout and say, hello and whatever. Make her feel comfortable.” I think that’s nice. People are nice, they get it.
Now sometimes people ask, what about hiring other people’s kids? Because then the question is is there a whole nepotism thing that’s going on? And that’s another issue for another day. Because some companies have policies about nepotism and your kid can’t be favored over others.
Elizabeth: Now what if it’s your grandchild instead of your child?
Gene: It’s the same concept. It doesn’t have to be your kid, just if you hire any kid you can take the tax deduction for it. And then that kid, hopefully, has got somebody advising them.
Elizabeth: Oh it’s any kid.
Gene: Yeah it’s any kid. It doesn’t have to be your kid.
Elizabeth: Interesting.
Gene: I mean, there’s no special dispensation.
Elizabeth: Niece, nephew, anyone.
Gene: Can be niece, nephew, grandchild or just a neighborhood kid. As long as that neighborhood kid knows to have their taxes done the right way and they don’t have to pay any taxes and put the money away for college.
Elizabeth: Great. Okay. We will be right back with Gene’s word of brilliance.
WORD OF BRILLIANCE: Charity
Elizabeth: We’re back, Gene is gonna share his word of brilliance with us and like the other, the previous three episodes now, four …
Gene: Eight, nine, they all kind of run together.
Elizabeth: We’re talking about different benefits you can put into your employee contracts so you can kind of compete with bigger companies to attract better employees. So this is another one of those cushy PTO benefits.
Gene: Some people think these benefits are ridiculous, other people don’t. Here’s one I don’t think is ridiculous. I think it’s nice. So here’s my word of the day. Charity.
Elizabeth: Okay.
Gene: One word.
Elizabeth: Good.
Gene: Yeah. One word, it’s charity. There are some companies, I’ll give you an example, Salesforce.com, well known company, they make customer relationship management software. They give to all of their employees six PTO, paid time off days a year to volunteer for charities.
Elizabeth: The Hartford does that, too.
Gene: Do they? Up to six? That many?
Elizabeth: Not that many but they do it.
Gene: Right? Do you hear this? If you’re a business owner, this is what big companies are doing. They’re encouraging their employees to do this. Salesforce also says in addition they give $1,000 per employee to their charity of choice. I don’t know if The Hartford does that.
Elizabeth: The Hartford matches up to a certain percent of any employee donations to a charitable organization. And I also worked at an investment bank, UBS, that matched 100%.
Gene: To a charity?
Elizabeth: And I’ll tell you why this is important. I mean, first of all The Hartford’s a really, really responsible, ethical company. But younger people, I’m not gonna use the M-word.
Gene: I know. I’m getting sick of using the millennial word.
Elizabeth: But people in their 20s, 30s early 40s, they choose companies based on how ethical the company is and being able to take time off to do charity, it’s another great recruiting tool.
Gene: It’s two thirds of those people, we won’t say who they are, in that generation in one recent survey – two thirds said that they preferred working for a socially conscious company and that all kind of brings the same thing with charity, that supports charities. So if you’re a small business and you’re recruiting and you’re trying to find good people for your company and you’re up against guys like this, The Hartford, this is the kind of stuff that big companies are doing. You got to respond in some way.
Now I’m not saying you give six days off a year for charity.
Elizabeth: I think one or two is …
Gene: Yeah, even a day. Say, “Listen, you know what? One day off a year you can take it, we’ll pay for it if you volunteer somewhere for charity.” I think that goes a long way and people appreciate it and they get it and it’s important to them.
Elizabeth: If you don’t want to do the one day PTO or the two days of PTO to do charity, another thing you can do is choose a day of service and have all of your employees go off site together and do something.
Gene: That’s right. That’s a really good idea.
Elizabeth: That’s really good for team building as well.
Gene: It is.
Elizabeth: So you could combine it into those two things. It’s kind of hard to shut down your entire business for one day but maybe you could pick two different days and send groups of employees out if you don’t want to do the PTO. But it is really, really important to people in their 20s and 30s and early 40s.
Gene: It’s really a positive example of the impact that this generation is having on corporate America. And I wrote in the Small Biz Ahead piece about some ridiculous perks. We talked earlier about Paul Turnedy Bennett, whatever. I think this is a really cool thing to do.
Elizabeth: And also, it’s just a good thing. It’s a good thing to do. How often are you able to just do something that you’re like, “My business is actually doing something really good for the world.”
Gene: I agree.
Elizabeth: So consider doing that. Thank you for joining us on another episode of the Small Biz Ahead podcast.
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