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Small business owners have traditionally employed their children in their businesses as summer help. The benefits are many, both for the business and the children. However, a Connecticut family has recently been in the news because having their children work in their family pizzeria has put them in violation of the state's child labor laws.
Federal and state laws that apply to hiring children, including your own children, take on particular significance during the summer vacation season when children are often employed to keep the day-to-day operations of a small business running smoothly.
The advantages to hiring your own children are numerous. It can be a relatively inexpensive way to help you get through the summer vacation season. Your kids, at the very least, will be productively occupied.
Depending on their age and knowledge of your business, observing first-hand the day-to-day operations of your business may influence them regarding their career path and whether they want to be an integral part of the family business in the future. Even if your children come to the conclusion that this business is not for them, you'll still have an employee you can count on to fill in when the need arises.
The federal child labor laws are numerous, but generally, most of them don't apply if you employ your own child. However, this may not be the case for state child labor laws. As in most instances where federal and state employment laws conflict, the law that is the most restrictive or offers the most benefit for those it was enacted to protect is the one that employers must comply with.
Child labor laws are in place mainly for the protection and well-being of children. Therefore, if a state law prohibits children of a certain age from being employed in certain businesses, the fact that the federal law allows the employment does not prevail. For example, the state of Connecticut has stricter child labor regulations for children under 14 than federal law. In Connecticut, children must be at least 16 years old to be employed at most jobs, and there are no exceptions for family businesses.
Does the fact that state child labor laws must be complied with make employing your own children more trouble than it's worth? The answer is a resounding "no." Every state's law is different, and checking the particulars of each state's laws with the state labor agency is crucial. If employing your children is permitted under federal and state law, the aforementioned benefits alone make hiring them worthwhile. However, hiring your children can also result in tax savings as well.
Hiring your kids as summer help may make you eligible for special tax breaks. A great tax benefit is that the amounts you pay them will almost certainly be taxed at a lower rate than you pay on your own income. If they save their earnings to pay for college or other future needs, all the better as more money can be accumulated.
We want to warn you, though, that your children must actually perform business tasks that they are qualified to do. If not, you run the risk of having their wages reclassified as "gifts" and taxed at a higher rate, negating this tax benefit.
Payroll tax savings may also be possible if your children are working for you. If you don't run your business as a corporation or partnership, you may be relieved from some FICA taxes and federal and state unemployment taxes in some situations. Generally, you'll realize withholding and FICA tax savings for a child who works as an employee until the child reaches the age of 18, and FUTA tax savings until your child reaches the age of 21.
Summer is officially here and there's no time to waste. Check the federal and state child labor requirements, and determine whether employing your children is a viable option for your family as well as your business.