There are certain advantages to keeping the business “all in the family.” After all, if you have to pay someone to help in the business, why shouldn't that someone be your spouse or your children? It keeps your business profits close to home and involves your family in the business, perhaps allowing your family members to better understand and respect your work. Children in particular can learn a great deal about the entrepreneurial world by helping you out — and it's possible that they'll gain a new perspective at the same time. There are, however, some pitfalls to be aware of.

First, you need to treat an employed spouse or child exactly as you'd treat any other employee for tax and benefit purposes. Taxes and other employment-related deductions, such as pension and unemployment insurance, need to be withheld; worker's compensation premiums need to be paid if they apply; and wages need to be reported to your employees and to the tax office annually. Your spouse or children will also need to file a tax return of their own. Just as important, however, are the personal considerations. Ask yourself honestly whether you and your spouse communicate well enough to work together? Will you have difficulties accepting business ideas or criticism from him or her? Will you be able to maintain the boundaries between your work and your family life? Do you view employing your children as a way to help teach them responsibility or do you expect that they'll already be responsible?

If you decide to go ahead with hiring a family member, make sure that his duties and responsibilities are clear, both to you and to him. Discuss your expectations and his so that opportunities for confusion and conflict are limited. And don't forget to thank him for his contributions, just as you'd thank any employee.