Putting Your Kids on the Payroll
Advice on Hiring Children as Summer Help

By James E. Bartolomei, CPA

You’re hired!  Those now famous words resonate far beyond the boardroom as the quest for summer help begins.  They are especially meaningful for family-owned businesses that look no further than their own backyard, recruiting their children to pitch in during the long school break.  But is a summer job for your teenage son or daughter really a good idea… or good business?

In many cases, hiring your children can yield excellent rewards for all involved.  It is essential, however, that you consider some important issues before taking the plunge — because the consequences of failure can be hefty, from breaking the law to jeopardizing the integrity of your business.

Start by determining whether or not employing your kids for the summer makes business sense.  Regardless of whether you own a retail store or professional service, affirm that summer help is necessary and feasible.  There must a valid job for your child to perform, and you must compensate him or her according to the value of that work.  Once you have an opening, also be certain that your prospective employee is qualified.  In other words, does your child have the appropriate skills, maturity level and aptitude for the job requirements?  Remember that he or she may be representing your company to clients, vendors and colleagues.

Another critical point is to make sure you know, understand and follow the law.  There is stringent federal and state legislation designed to protect the health and well-being of minors in the workplace — even when they are your own children!  The federal Fair Labor Standards Act (FLSA), also known as the “Wage and Hour Law,” incorporates child labor regulations based on such criteria as age, occupational environment and the type of work performed.   The New Jersey Department of Labor also stipulates guidelines for workers under 18 years of age.

Every family business should consult with state and federal government agencies for a full explanation of child labor laws.  Generally speaking, there are many legal exemptions for family proprietorships that employ their own children. For instance, while most jobs — other than newspaper delivery and agriculture, are not open to minors under age 14, parents may hire their own kids in almost any non-hazardous occupation regardless of their age. Keep in mind that when federal and state standards differ, the stricter law, or the one that offers the greatest protection to the employee, always prevails.  Complacency could cost you; civil penalties for noncompliance carry fines of up to $10,000 per offense!

Once the legalities are squared away, family businesses can reap tremendous tax advantages from putting their kids on the payroll.  Any sole proprietorship, parent-owned partnership or LLC (limited liability company) does not have to withhold Social Security or Medicare taxes (FICA) for children under 18 years of age.  Furthermore, children under age 21 are exempt from Federal Unemployment Tax (FUTA).  In either case parent employers still need to withhold federal income tax and file a W-2 form for each child.

The greatest fiscal benefit results from the fact that you are shifting income from your business to your children who are in a lower tax bracket.  Your company can deduct the wages, so you are essentially reducing your self-employment and income tax.  A great way to increase “family revenue” while paying less to Uncle Sam!

At the same time, working in the family business also produces enormous benefits for your children.  They can take a first step toward retirement planning by contributing to an IRA, saving tax-deferred income at a very early age.  The summer can also serve as a valuable learning experience, giving many young people their first exposure to a professional work environment.  They have the opportunity to get a close, first-hand look at the family business, which may assist them in guiding their education, establishing career goals and directing their future vocation.  A summer job also helps children understand the value of earning money, as well as saving it.   (It may inspire your 13-year-old to stash away funds for a new computer game, or your 17-year-old to open a bank account for his own car!) 

Best of all, employers often notice an appreciable boost in their child’s self-esteem, stemming from increased responsibility, independence, accomplishment and success.  For any parent, the payoff simply doesn’t get better that.

James E. Bartolomei, CPA, is the founding and managing partner of Bartolomei Pucciarelli, LLC. He has 22 years experience helping small businesses increase their financial net worth.  He is also a proprietor of Allfathers Candy Company, a family establishment in Mercer County, and has owned several other successful enterprises.

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