Potential Pitfalls of Hiring Family and Friends

It’s not uncommon for family and friends of small business owners to ask for jobs. While there can be benefits to hiring people close to you, it’s also a risk. Few other business decisions have as much potential for conflict, so proceed carefully.

Experts recommend establishing and following a consistent set of policies and procedures for hiring all employees, including friends or family members. This helps ease concerns by existing employees about fair treatment. These policies should be formalized in writing and distributed to all supervisors and managers with hiring responsibilities. Here are a few areas to cover:

• Written job requirements and description: The job requirements should be the same for all applicants, regardless of their friendship or relationship with the owner. This includes the experience, skills, and education level required for the position. The key is to write a job description for the position, not for the person, and be firm with the requirements you’ve established and be objective when analyzing the friend or family member’s qualifications. The job description should detail specific tasks and responsibilities required and your expectations of performance. Also describe where the job fits in the corporate hierarchy, whether it’s entry level or management, for example. And include specific criteria the employee must meet to be considered for promotions and raises.
• Supervision and reporting: Most experts recommend that family members and friends of the owner should report to someone else. Not only will this allow for more objective feedback and supervision, it will help show other employees that the family member or friend isn’t getting preferential treatment. One danger is that the supervisor may feel threatened by having to supervise the owner’s relative or friend. So before assigning supervisory responsibility, talk with the manager and make sure he or she will be comfortable in this role.
• Compensation structure: This is probably the area with the greatest potential for resentment and misunderstandings among employees. You must take great care to avoid any perception that friends and family members are receiving any kind of preferential compensation treatment. Instead, base their compensation strictly on the fair market value of their job responsibilities and what you would pay any other employee for the same or similar job functions.
• Potential separation guidelines: Not all hires work out, of course, so it’s critical to plan upfront for this possibility. Employment separation with a family member or a friend can be especially sensitive, so talk about it in advance and spell out the details of separation protocol in advance (including possible severance). Just as important, make sure you’re emotionally prepared if you have to terminate a friend or family member. It might be wise to start the friend or family member on a temporary or trial basis, such as three to six months. After this time, either party can discontinue the arrangement if they don’t think things are working out, with no animosity or hard feelings. This can help keep a close family relationship or friendship from deteriorating, regardless of what happens with the business relationship.