Some business owners hire family and friends out of necessity while others do it for tax or other advantages. Regardless of the reason, employing a family member or friend has advantages and disadvantages. If you are thinking about hiring people close to you, it is important to understand the pros and cons so that you can establish the right management processes.
Hiring friends or family members can be a positive experience, but on the other hand issues might to arise when an employee tries to take advantage of a friend family connection. For example, a friend employee might get in the habit of leaving early several times a month, or a family member might think its okay to call in absent on a regular basis.
One of the most difficult situations is when you have to discipline or even terminate family member or friend. Even though the move makes business sense, you could incur a lot of bad feeling from family members or friends who may not understand the situation and think you acted unfairly. This can put a lot of extra stress on the personal and professional sides of your life, which in turn can adversely impact your ability to grow the business.
Employees who are family members also come under the scrutiny of the IRS, which is fully aware of the tax advantages of hiring spouses, parents, and children into a company. If you cannot show that these staff members really did work in the company to earn a wage, and that you applied human resource policies equally across the board, you can end up in hot water with your friendly tax man.
If you need or want to hire family or friends, be sure to adhere to good business practices, like these
1. Create clear job descriptions for each employee.
2. Have all employees fill out and submit time cards on a regular basis weekly, biweekly, or monthly.
3. Establish specific hours for all workers, including part time help.
4. Write out all employee benefit policies, including items like paid holidays, health insurance, retirement plans, and company sponsored programs, and keep these policies in your files.

In terms of your management style, treat family and friends the same way you treat other employees; that is, don't reward them or penalize them because of you off-hours relationship. Hold these employees to the same standards as everyone else in terms of dress, behavior, and quality of work. And just as any employee should relate to you as the boss, these particular employees need to defer to you regardless of your personal relationship. Keep non-business conversation for non business venues.
Hiring family members or friends is not for everyone. It is a challenge to make rules for your business and then enforce them in a firm but fair manner. If you are going to hire someone that you know, you owe it to them and to yourself to be up front about expectations. If you have any questions at all, listen to your gut and do not be swayed into making a mistake. Helping someone out or pursuing tax advantage is a good thing, but if roles are not clearly defined, you are asking for trouble. Set performance parameters, stick with them for every employee, and maintain professional decorum in your on the job relationships. Write down policies and keep the right records. That way, you can prove valid employment to any interested party, and if the situation does not work out, you have legal grounds for dismissal.