Tips for Employing Family Members in Your Business

Employing family members in your business can conversely be both a tremendous help and sometimes a hindrance. As a family business advisor I have seen families where a family member may work 12 hour days as their “duty” and other family enterprises where a position in the business is seen as a right. Neither practice is correct, but they are difficult to address once entrenched. With that in mind this month’s piece is on the 4 best practices to employ when employing close relatives. David Harland – Family Business Advisorfullbean

There are few topics as contentious in the family business sector as that of whether and how to employ family members. For many business leaders, giving children and relatives a place to work is one of the primary drivers behind owning a family business. Unfortunately, in our experience, blindly hiring family members without thinking carefully about how they fit into the current and future needs of your business frequently leads to family friction as well as problems for the business.

There can be many benefits to employing family and many businesses count their employment practices among their strongest competitive advantages. Family members are more likely to be truly committed to the success of the business; when times get tough, family is more likely to stick together and do what needs to be done to get the business through; children who work in the business can provide a natural succession option when the older generation decides to step away from the business.

There are also many ways in which employing family can go wrong. Some of the common problems I’ve come across as an advisor are: family members given inappropriate responsibilities or seniority; relatives being compensated well above their job title; non-family employees becoming demoralized when they realize that their career prospects are limited.

In my experience, holding to the following best practices can help your business thrive while employing family and avoid many of the pitfalls related to family employees.

Create clear job descriptions and expectations for each position

Developing clear expectations for each role and identifying performance standards will help you bring every member of your firm up to the bar. Understanding exactly what you need from each employee makes it easier to conduct impartial reviews and objectively address any issues with your family and non-family employees.

As part of the professionalization of your firm, consider creating career paths for each employee where you map out possible trajectories within the firm and decide on performance objectives together. For non-family employees, this process can help reduce turnover by showing them how they can progress within the firm. It will also help you identify ambitious employees who may be able to take on future leadership roles.

Pay all employees market rates

One of the best ways to prevent favouritism and promote loyalty among your employees is to establish market-based pay rates for each position in your firm. We generally recommend that family businesses separate ownership interests from employment. This allows profits from the business to be distributed to family members according to ownership shares while keeping work-related pay tied to employment.

Establish that a job in the family business is a privilege, not a right

Employment in in the business should be considered an opportunity and applications from family members must be evaluated on their merits. Every member of your family is not cut out to work in the family business. Even if your most cherished dream is to hand over your business to a child, it’s still important that your family members feel as though they have other options. Hiring a relative just because of a blood relationship can cause friction with other employees and lead non-family employees to become resentful, potentially affecting productivity or increasing turnover.

The most successful multigenerational family businesses nearly all require family members to gain experience outside of the business before taking a position. Why? It gives them the opportunity to prove themselves outside of the family and avoids ossification of the family business by ensuring a steady supply of fresh ideas.

Judge family and non-family employees by the same standards of success

Setting clear expectations and benchmarking performance will help you keep work evaluations free from bias. If you are concerned about favouritism or maintaining objectivity, I would recommend that you bring in outside experts to evaluate your HR practices and set up a process for unbiased assessments.

Ultimately, your business exists to make a profit. It isn’t a philanthropic enterprise for the benefit of your family. As an owner, you need to establish a clear business case for every employee you hire, including family members. Developing professional HR practices and standards for employment or promotion will help you avoid some of the employment pitfalls of hiring family members.

Want to learn more about hiring family members for your family business? Contact FINH on 07 3229 7333

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