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Employing family members

According to the Institute for Family Business State of the Nation report on the UK Family Business Sector 2019-20, family businesses here in the UK make up over 87% of the UK’s private sector firms and employ 14.2m people – half of all of the employees in the private sector.

The family business sector also earns over £1.9 trillion in annual revenue contributing £657 billion to UK GDP.  Regionally and in many business sectors such as farming, hospitality and construction, the number of family businesses make up a considerable proportion of total private sector businesses.

A common theme in many family businesses is therefore the employment of family members and how can this be done without holding a business and its potential back?

When businesses recruit, they generally want people with a specific skill set or expertise to help take the business to a new level but there is no guarantee that family members will naturally possess what is needed. Employing family members can certainly test bonds and it is worth asking yourself what the individual can bring to the business and would you employ a non-family member if they also brought no outside knowledge and experience to your business?

Before employing family members, consider the following:

  • Are they suitable for the position and will they be willing to work hard and earn the respect of your other employees?
  • Can you and they put business objectives over and above family ties and in particular family politics?
  • Will you apply the same pay policy, disciplinary and appraisal procedures to all workers?

Another important point to note is that all employees need to be treated the same because the law doesn’t distinguish between someone being a family member of not.  Therefore, they still need to have a written statement containing certain information about their employment usually via an employment contract or letter of engagement.  Other information such as details of the company’s disciplinary and grievance procedure, sick pay, pension and other employee schemes should also be provided in a staff handbook.

If you are employing a family member to head up a team for example you must be careful not to demote or reassign other employees, especially anyone who is already in this role, as this could lead to a claim for unfair dismissal.  So think about the structure of the business carefully.

Family members should be treated equally and the rules in relation to discrimination apply in the same way as they would with any other employee, so they cannot be treated less favourably because of a protected characteristic.

More common are issues around staff morale, especially if you have employees who have been working towards the next step in their career and a promotion only to see a family member joining and being appointed to the role.

If you decide to terminate the employment of a family member you need to ensure you follow the same procedures as you would for any employee with the same length of service and if that is because of issues of their performance, that should first include following a performance management process to give them the chance to improve.  Keep a documented record of everything as you would with any other employee.

Like all employees there is a risk that the family member could subsequently leave the business and set up a new business in competition. Make sure you have a well-drafted employment contract which includes restrictive covenants to protect your business in the future.  There are different types of restrictive covenants such as non-solicitation, non-poaching, non-dealing and non-compete and they must be reasonable and relate to a specific time period.

There are certainly many issues around running any business and employing all staff, so if this is a new step for your business then make sure you take legal advice first, to ensure you get it right first time.