Have you considered hiring your own children to help manage or add support to your small business?
From farms and agriculture businesses to family restaurants and corners shops, children can gain experience, a sense of responsibility, and a little extra cash by joining in on a business for a few hours each week.
From a business owner’s perspective, between the tax incentives and the personal benefits, adding children to payroll is a great way to expand your business.
Here are a couple of things to keep in mind if you plan on employing an individual under the age of 18.
Who You Can Hire
Due to labor restrictions, you cannot employ a child under 17 years of age for a job deemed “hazardous.” Common sense notwithstanding, hazardous jobs include working in places such as steel mills. Likewise, most agencies won’t look kindly upon an eight-year-old operating a weed whacker for your lawn restoration service. The child must be capable of performing the duties at hand.
It’s worth noting that, if you are a family business, hiring your child to fulfill an appropriate task pays dividends: your child’s income qualifies as a deduction, and your money—their wages—stays in the family. This is an excellent way to instill your brand’s legacy while saving money.
If you’ll be considering hiring staff members under the age of 18, it’s a smart move to refer to and become familiar with the Department of Labor’s Child Labor laws →
Rules of the Road
Aside from the aforementioned hazardous occupations legislature, you’ll need to follow some pretty simple guidelines in order to avoid an audit and potential fees. First and foremost among these is the amount you can pay your child per year before that sum begins to accrue taxes; since this number fluctuates, make sure you check before setting a salary (or hourly wage) for your kid.
If you are the sole business owner, a sole proprietor, or a partnership where both parties are parents to the child, you won’t have to withhold FUTA, social security, or Medicare taxes until the child is 18 years of age (21 for FUTA).
However, you must withhold FUTA, social security, and Medicare taxes if any of the partners are not a parent of the child or if the business is a corporation, even if it is controlled by the child’s parent.
Regardless of their age, and whether they are part-time or temporary employees, minors are still required to have income taxes withheld from their wages. Have your child complete a Form W-4 to determine withholding.
Appropriate Hours and Wages for Children
There is no hard-and-fast rule for how old a child has to be before he or she starts working for you at the family business or a nationwide limit on how many hours a child can work. Individual states often put restrictions on these categories, so it is important to review your own state’s laws before implementing employment (Note: if there is a discretion between federal and state laws, the more protective will apply). For instance, the Fair Labor Standards Act sets limits on the number of hours and time frames that 14- and 15-year-olds can work, but does not have requirements for employees aged 16 and older.
Furthermore, the position for which you hire your child also must be a “real job,” meaning that, if your child were not doing the work, you would be paying someone else to do it, in order to qualify for the related tax deductions.
Pay Rates for Your Children
Another pertinent topic to consider is that of fair wages. Generally speaking, you shouldn’t pay your child more than you would normally pay any other employee. Doing so puts you at risk for an audit in which you will have to prove that the rate at which you pay your child is “fair.” Since the IRS is particularly shrewd when it comes to family businesses, you’d do well to avoid suspicion altogether by paying your child at a fair, equivalent rate.
When it comes to paying your child, you must pay them in accordance to your own business’ pay period policy (e.g., every other week, monthly, etc.); failure to do so will reflect on you poorly during an audit.
After paying your child, you cannot demand or reclaim any portion of their salary as a general rule. Similarly, you cannot ask your child to pitch in on rent or other living-related expenses—though you can certainly request that they start paying their own phone bill every month.
From a broad perspective, your best bet when employing a child is to treat them like any normal employee. This will create a degree of separation and, ideally, keep you from engaging in nepotism that could lead to an expensive audit. Keep accurate payroll records and provide a fair, learning experience for your child.
Eager to keep your business in the family? We can help! Call Abacus Payroll today at (856) 667-6225 for a no-obligation quote!
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