Employing Friends or Family

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Every media outlet in the country is talking about our record-breaking low unemployment rate (3.2%) and our tight labour market. A substantial proportion of our clients are recruiting – heck WE are recruiting! When the pool of candidates is so low, it can be tempting to look close to home to fill those gaps. In the spirit of us all being in this together, we thought it was worth saying: if you are considering employing friends or family, do it properly!

Please (please) go through the following tips to protect your relationships and your business:

  • Discuss from the outset how you are going to sort things out if it doesn’t work out for you.
  • Provide an employment agreement and make it a great one – you may regret cheap and cheerful.
  • If appropriate, advise the rest of your workforce of your relationship with the new staff member and have any concerns raised with you directly and privately. Good communication and nipping any concerns in the bud early could save a lot of time and heartache down the track.
  • Set out policies that explain what you expect from your staff. For example, how they apply for leave, what happens if they need flexible working conditions, how you will respond to damage to your equipment, or your relationship with your suppliers or clients.
  • Comply with the full gambit of your legal obligations – think health and safety and privacy as well as employment.

The power of the handbook

At FixHR we produce employee handbooks for our clients that cover off what you as an employer expect, and what will happen if your expectations are missed. This is a very handy document to have in place before you have a family member or friend join your team, but it’s never too late to craft one or have one crafted for you (contact us if you’d like us to help). Having a concise and tailored set of policies benefits you in the following ways:

  • They set a standard which everyone is expected to adhere to, so your friend or family member is less likely to create resentment among your other staff.
  • They reduce the chances of your new recruit making demands of you that are awkward or unreasonable.
  • They are not contractual, so they give you some flexibility and discretion if required.

A well-written handbook can foster a stronger, more positive company culture. One in which policies are clearly defined and consistently and uniformly implemented. Employing friends or family without this foundation in place can lead to all kinds of havoc. What we are doing with a handbook is mitigating the risk that things get complicated, personal and/or expensive as you take on your neighbours or friends in the tight labour market.

Other benefits of clear expectations

Additionally, aside from the particular circumstances we are talking about here with family or friends joining your business, handbooks help create the kind of company culture needed for the business to thrive. They can also help create an environment where employees feel respected, helping them succeed as well as keeping staff engaged and motivated.

A handbook helps make your business a great place to work – and that’s good for business. Not creating and maintaining a handbook is one of the top human resources mistakes companies make.

Please note, bound, hard copy handbooks are not required and nor are handbooks the reserve of corporates or businesses with a large staff. A handbook can be an electronic file stored online and shared electronically, so long as employees and management can easily access it. It’s important to have documented acknowledgement that every employee has reviewed the handbook and agrees to follow the outlined policies outlined.

A story of when it all went wrong

An interesting case of a friendship/employee bust up was seen by the Employment Relations Authority back in 2010 – some time ago now, but relevant, and useful to review. It highlights the dangers of employing friends and the difficulties a friendship poses when fulfilling your obligations as the employer.

The employer in question was Clark Education and Training Limited. The friends were Christopher Clark (the business owner) and Perry Wright. Perry was a solo dad of two young children and was on the DPB. At that time, he could earn $80 without his benefit being reduced. Christopher’s company needed someone like Perry to organise training courses from home. In short, a mutual need; the essential ingredient for a relationship existed. However, the way they went about creating their working relationship was determined by their friendship rather than normal employment practices.

Clark didn’t provide a written agreement, because they were friends. There was a sense in which an agreement would have felt insulting and challenged the trust the two had in each other. Additionally, their key concern was to arrange matters to avoid any impact on Perry’s benefit entitlement. The company paid $130 per course. They decided to pay Perry $80 each month and the rest in kind; fuel for Perry’s car. They also provided him with a landline, internet connection and a laptop.

Was Perry an employee?

Over time, Perry’s performance began to wane, and Christopher became concerned. Courses were cancelled because Perry was leaving things to the last minute, causing Christopher to conclude that Perry could not cope with cold calling. However, the pair did not talk about the performance issues and eventually Christopher visited Perry (without telling him what he wanted to discuss) and told him that the arrangement was not working out. “In the interests of their relationship”, he said, they should part company. The failure to talk about performance issues and the manner in which Perry’s employment was terminated suggests that friendship heavily impacted the communication – and lack thereof.

Perry pursued a grievance. At the Employment Relations Authority Christopher disputed that Perry had been an employee and produced a contract to prove that other people doing the same work had been independent contractors. However, Perry had never seen such a contract and they did not discuss the matter at any time during the employment relationship. Getting the correct relationship right is crucial as we wrote in our Employee or Contractor blog here as it impacts what a worker is entitled to. For compelling reasons, including the deduction of PAYE from the $80 payments, the Authority concluded that Perry was an employee and had been unjustifiably dismissed.

The moral of the story

If you value your friends, then think very carefully before you employ them, even if your options are much reduced in this tight labour market. If you intend employing friends or family, discuss with them from the outset how you are going to sort things out if it doesn’t work out for you. And do things properly – provide an employment agreement, get a good handbook of policies that capture your processes, and comply with your legal obligations.

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