Summer hiring guide: The legalities of employing teens & family

Hiring Teens for the Summer

Summer is a popular time for businesses to hire teenagers for seasonal work. As many of these young workers may be taking on their first job, employers must remember some important payroll considerations.

First-Job Jitters

It’s natural for employers and young employees to experience some jitters regarding payroll. A clear understanding of the basics can help alleviate those concerns.

  • Pay Periods: Explain whether your business operates on a biweekly or semimonthly pay schedule.
  • Withholdings: Explain the concept of gross vs. net pay and the various deductions for federal and state income taxes and FICA taxes (Social Security and Medicare).
  • W-4 Forms: Explain the purpose of W-4 forms and the importance of completing them accurately. Note that teens can seek assistance from their parents if needed.
  • Tax Returns: Inform teens that they may need to file federal and state income tax returns the following year.
  • Direct Deposit and Paycards: Encourage teens to open bank accounts for direct deposit but be sure to obtain consent if using paycards. Avoid loading pay onto debit cards or phone apps.

Unpaid Internships

Unpaid internships can be a valuable opportunity for students to gain experience. However, they must meet specific criteria that the Department of Labor outlines to be considered legal.

Key Requirements for Unpaid Internships:

  • No Expectation of Pay: Interns must clearly understand they will not be paid.
  • Training Similar to Classroom Instruction: The internship should provide training comparable to what students would receive in a classroom setting.
  • Relevant to Academic Studies: The internship should relate to the intern’s field of study.
  • Aligned with Academic Calendar: The internship should accommodate the intern’s academic schedule.
  • Limited Duration: The internship should be limited to the period when it provides beneficial learning.
  • Complementary to Paid Employees: Interns should not displace the work of paid employees and should receive significant educational benefits.
  • No Job Guarantee: Interns should not expect a paid position after the internship.

Hiring Family Members: Payroll Tax Rules

Hiring family members, especially children, is common in family-owned businesses. However, specific payroll tax rules apply, and employers must follow them to maintain compliance.

Keys to Payroll Tax Compliance

  • Pay Based on Services Performed: It’s crucial to pay family members based on the actual services they perform for the business. Avoid paying them for household chores or unrelated activities.
  • No Special Treatment: Treat family members like any other employee. They must have defined job duties, complete required paperwork, and submit accurate time sheets.

Payroll Tax Breaks

Certain tax breaks are available for some family businesses that hire their children.

  • Sole Proprietorships and Partnerships: Payments to children under 18 are exempt from FICA (Social Security and Medicare) and FUTA (federal unemployment) taxes. Payments to children under 21 are exempt from FUTA taxes.
  • Corporations (including S Corps and LLCs): These tax breaks do not apply, but businesses can still deduct salary and employer FICA taxes. Additionally, children employed by corporations start building their Social Security wage records earlier.

By understanding and adhering to these payroll regulations, businesses can ensure compliance and create a positive work experience for both their young employees and family members.