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Hiring friends and family – what you should consider

Last updated: 2021-06-02 (originally published on 2017-01-19)   — by Alex

Maybe the time has come for your child to experience the mechanics of working life, and put their skills to good use in helping out the family business. Or a good mate of yours is looking for something to do, and asking a favour that you employ him/her in your business.

Be it a summer internship or a part-time job, should you put friends and family on the payroll? While there are definitely tax implications, there are also business and personal implications as well.

Hiring friends and family – what you should consider

Here are 4 things to consider before putting friends and family on the payroll:

1) Is it really necessary?

If you are hiring friends and/or family simply to help out with occasional chores in your home office, such as filing, folding of envelopes… you may want to bypass the formalities of putting him/her on the payroll. If the work is minimal, perhaps simply provide a fee (or if it were your child then an allowance for the work done), rather than going through the hassle of putting them on the payroll record.

The law generally provides a few guidelines for distinguishing between contractors and employees:

Learn more about the differences between
an Employment Contract v.s. a Consultancy Agreement

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2) Are they legally-allowed to do the work?

If you have decided that your need requires a full-time commitment, you will then need to consider:

  1. If the person of concern possesses the required working visas or permits required to work for you,
  2. Your legal obligations as an employer, such as MPF and CPF contributions in the case of Hong Kong and Singapore, and
  3. In the case of young adults, if they have reached the minimum age to work legally in the country.

Country-specific laws may also provide more flexibility for hiring someone temporarily, such as the under the Work Holiday Programme or special exemptions for student pass holders in Singapore.

While you might think that their working stint is short and their record will only be reflected in the payroll system for a short duration, this might result in serious implications when it comes to payroll audit checks.

3) Tax and other employer obligations

Placing an additional employee on the payroll system will subject you to additional obligations such as taxation and other areas of employment law. Have you factored these in as additional costs? How about when you need to provide benefits such as annual or parental leave, health insurance, or overtime pay?

Also read: Using payroll software to automate and improve the accuracy of payroll calculations

4) A better resource?

Instead of doing your friend or family a favour – would it be more cost efficient to hire someone with the necessary experience and expertise to do the job instead? It is not difficult for organisations today to gain access to skilled, freelance talent. While getting your child to do the work may seem convenient in the short run, it may have a detrimental impact on output and productivity due to the lack of experience and industry expertise. You should definitely also consider the option of keeping professional commitments and personal favours very separate.

This a guest contribution submitted by Gpayroll. The views expressed here are of the author’s, and Zegal may not necessarily subscribe to them. You, too, are invited to share your point of view. Learn more about guest blogging for Zegal here.

About Gpayroll

GpayrollGpayroll is an easy to use, self-run online payroll service that will redefine and revolutionize the payroll industry. Its intuitive and automated system will help business owners focus on their core business without the hassle of managing payroll. Follow on Facebook

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