Many small business people turn to friends and family to fill their employment openings. This is usually a bad idea. Many people find it difficult to act as boss to friends and family and many friends and family find it difficult to act as employee to someone they are friendly with. This often ends a friendship and puts strains on a family relationship.
The main difficulties people experience with hiring friends and family is separating the personal relationship with the professional. Your sister may not look at you and see her boss, she sees the big sister who always bossed her around. Your friend is used to being an equal and you may find it difficult to act as boss. If you have other employees, a friend or family member may undermine your authority.
If you do decide to hire friends and family, consider the skills you need for the position you are filling and select the person with the best fit. Using a family member who offers free labor is not a good idea if they lack the skills needed to be successful. Putting together a job description with skills required for the position is a great way to determine if your friend or family member has the necessary skills. Having a written contract and using a three month trial employment period is a good way to make the relationship formal. Have everyone fill out the normal new hire forms, whether they are friends, family or a regular employee. Understand that if you have other employees and you offer them paid holidays or sick leave or paid vacations, then you must offer this to friends and family as well. You must not offer your friend or family members more than what you are offering regular employees either.
There are tax benefits to employing family members. If the business is a sole proprietorship or a partnership where both partners are spouses, then children, spouses or parents are not subject to FUTA (federal unemployment tax). Children under the age of 18 are not subject to FICA taxes (social security and medicare). All are still subject to income tax withholding. On a federal level, children of small business owners are not subject to as many limitations as to the number of hours and days they can work. You should check with your state regulations as they may differ.
Consider all the pros and cons carefully before hiring a family member or friend to work for your small business. While you may think they will have greater loyalty to you and our business than a stranger would, the personal relationships may complicate the work relationship to an extent it is crippling.