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3 questions to answer before hiring a family member

Embarking on a new business venture is often exciting -- and scary. Business owners typically have a lot on the line when they start something new, and any setbacks can prove to be costly. As such, minimizing risks when necessary can be crucial.

Hiring family is one way that people often attempt to protect themselves and their business. After all, there can be a lot of trust and support built into the relationship from the beginning. If you plan on doing this, you should take some important steps to set the arrangement up for success. This includes being able to answer the following questions.

  1. Will he or she have access to sensitive, confidential information? Trusting family with a personal secret is one thing; trusting them with the proprietary information of your business is another. If he or she will have access to confidential data, you would be wise to consider having a non-disclosure agreement in place. As this Forbes article notes, having an NDA ensures you both know what information is protected and what the penalties are for sharing or using the information improperly. 
  2. What type of worker will he or she be? There are different types of workers, and properly classifying every worker -- including family members -- ensures that you are in compliance with state and federal employment laws, like minimum wage and overtime pay. It also helps everyone understand the expectations. If the person is a contractor or freelancer, for instance, it would make sense that he or she has more flexibility with a schedule and reporting requirements.
  3. What happens if a dispute arises? A professional dispute can easily cause a rift in the personal relationship, and vice versa. As such, you should have in place guidelines for how to address business disputes, should they arise. This might include agreeing to mediation or arbitration, or you might identify a neutral party in the business who will resolve a matter when you and your family member cannot agree.

These steps won't prevent all business disputes or guarantee that hiring a family member will be successful. However, they can be crucial in shielding a business from the any fallout that could result if family and business collide.

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