Family Businesses: Pros and Cons Of Hiring Relatives

If you run a small or medium sized business, do you employ any family members? Currently, more than a fifth of small business surveyed (21%) do so.  What’s more interesting is that a staggering 94% of SMEs employing family members felt that their business had benefited as a result.

I’ve always believed hiring a family member can be a double-edged sword.  Mainly, what if they start taking advantage of your relationship and not doing what their job entails?  Your Uncle Bobby might think that because he took you to all those ball games growing up, it’s payback time, and he shouldn’t have to work as hard as other employees.  On the flip side, there’s no better joy than to hire a family member who is need of employment.

LET’S TALK FAMILY

Public liability insurance provider, Hiscox, carried out a survey of 1,000 UK business owners on the subject of family employment to ascertain the above results.  Interestingly, 43% of those currently employing family members said it was due to the recent recession.  With millions of people around the world losing their jobs over the past couple of years, there’s a high likelihood that you might be related to one of them.

A lot of SMEs have also struggled due to happenings in the financial world, and employing a family member for perhaps a discount to market provides a mutually beneficial solution to both parties.  For hiring companies, the recession has created an increased supply of skilled people with experience looking for work.  If one of those people so happens to be a family member, then all the better.

Concerns

The Hiscox survey found that 43% of those questioned felt that the biggest risk was keeping family and work life separate. A further 25% were worried about family politics.  While succession of business ownership is generally seen as being a big issue, only 8% felt that this was a risk.  As I discussed above, you might also end up hiring relatives who feel entitled, and end up not doing what they are supposed to do.  When it comes time to do their review, you probably won’t give it to them straight either.

Benefits

While this shows that there are definitely issues to consider when employing a family member, the fact that you already know them means you are more likely to be able to easily identify the relevant risks. Plus, your pre-existing shared interests mean that it’s in both your interests to make it work.  If your relative has been out of work for a while, s/he may feel so indebted to you for hiring them that they will work far beyond what is expected of them to show their gratitude.  Not only that, they may accept less money because they just want to be productive and have disaster insurance.

The majority of SMEs in this study who employ family members say it’s a good thing to do.  I have to agree.  When it comes to a small business, you want to work with people you can trust the most.  There is nobody I trust more than my immediate family.

Readers, what are your thoughts about employing family members as employees?  Do you think this is positive for the business overall, or negative?  After all, there’s a reason why there’s a term “small family-owned businesses.”

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. says

    Pros and cons to hiring relatives. That’s one of the evaluation factors I consider when looking at a small business, a good succession plan. A daughter or son immersed and well-schooled in the business is a good sign. On the other hand, the second-generation curse is real: it pays to notice the useless VP who got there just because Daddy owns the company.

  2. says

    I think it’s highly dependent on the family. In some families it’s a great idea, skills align well and there’s a lot of trust, but for others it could be a complete disaster. I bet you’re right – that when hiring family members works out it’s way better than hiring an unrelated employee. But I would also guess that when it doesn’t work out that it ends up being way worse than hiring a non family member. High risk-reward I suppose.

  3. says

    I think it depends on your relationship. I have relatives that I wouldn’t trust for one second. The obvious pro with close family members is that you have a connection that you’ll never have with any other employee.

  4. says

    Here’s what I would say – either hire only family members or all outsiders for running the core of the business. Feeling of not being partial always creeps up otherwise.

  5. says

    Relatives should be screened like any other employee! If they were not a relative, would you hire him/her? If the answer is yes, then hire the relative. If no, then don’t. I realize it gets trickier when it is a spouse, but you must be honest.

  6. says

    I don’t think I would like to hire and/or work for a close relative – but maybe a cousin, someone I didn’t have too see each night. I could never work with my wife, or her sister, for example. I see them at home and I wouldn’t want to deal with them at work!

  7. says

    Never in a million years would I hire anyone from my family. Well, no one besides my mother–she has a knack for turning 10 hours of “busy work” into 2 hours and done. It’s amazing, really.

    We often joke about how she’d go part-time with me post-retirement. If that materializes, I’d welcome it in a second.

    However, I don’t think I’d ever want family in the executive level. 1) I’m not sure it’s best for the whole of the family to know the bottomline 2) I don’t think it’d be good for a family to have decision-making conflicts at work, which would eventually flow into the family. There’s not a chance I’d hire out of my immediate family…I just can’t see that working very well.

  8. says

    Hi There Sam!
    Although I don’t have any first-hand experience dealing with a family business, I can definitely agree that there would be both pros and cons. Like you said, family is usually the most trustworthy relationships we have, making them the best candidates for within family employment. Luckily for me, I’m the Mayor of an imaginary town so I don’t have the pressure of a family member looking to me for a job. Thanks for the read!
    Humbly Yours,
    The Mayor

  9. Untemplater says

    Trust is a big pro. Trying to get relatives you work with to face their weaknesses and problems must be a big challenge and a con if it backfires or isn’t well received.

  10. says

    @The College Investor
    Yeah, I think working with parents or your spouse or brother would be way too stressful. I do believe having a spouse as a blogging/online business partner could be good though. Cousin seems reasonable.

    @JT McGee
    If a family member was very in need and competent I would hire him or her. However, I would be under no illusion that things will be hunky dory forever.

    @No Debt MBA
    The downside risk when things don’t work out is very bothersome. That really is the biggest hesitation b/c a soured pro relationship could ruin the personal forever.

    @101 Centavos
    Good point on noticing the “useless VPs”!

  11. says

    Both my dad and grandparents were small business owners (my dad still is one), and I from what I observed, it has been mostly negative.

    My grandparents daughters hated working fro them, and eventually there was such great discord that one of my grandparents daughters never spoke to them again. This was a huge strike against employing family members…

    My dad has hired certain brothers (the ones that had a hard time getting jobs at certain points in their life), and they turned on him. So that was a disaster too!

    I think it depends on the relative, and the degree of control the relative will have working at the job…

    • says

      Oh wow, that sounds rough Don. Especially the one who couldn’t get a reasonable job and turned on em!!

      Thanks for the insight as I think you are right. We gotta really be supercareful hiring relatives, especially when things are tough in the economy.

  12. says

    My family has business that I used to work at in high school. It does have perks to work with family but I found at least in our case that it takes a huge toll on relationships. My mom and brother are no longer close- in fact she has a hard time tolerating him. They used to get along great. You see a business matter or dispute becomes a family matter when everyone is related. I wouldn’t recommend working with those you are related to unless you aren’t very close with them.

    • says

      Miss T, that is very sad about the strained relationships, and I can understand FULLY after spending a week with my parents. Parents can’t help but instruct their grown kids to do X,Y,Z even if the “kid” is 30-50 years old!

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