Kin on the Clock: Employing a Spouse or Teenager the Right Way
Photo: U.S. Department of the Treasury, Public domain, via Wikimedia Commons
Families have worked together in businesses for as long as there have been businesses. The corner shop, the farm, the family building firm — a spouse behind the till or a teenager helping out during the holidays is a familiar British picture. What has changed is the paperwork. HMRC expects family arrangements to meet exactly the same standards as any other employment, and the phrase "it's my wife, we don't bother with all that" carries no weight in an enquiry.
The good news is that doing it properly is not complicated. It simply requires the same discipline you would apply to any other employee.
Why Put a Family Member on Payroll at All?
There are legitimate financial reasons. A spouse earning below the personal allowance threshold may pay no income tax at all, while their salary becomes a deductible business expense, reducing your company's or your business's taxable profit. If they have little other income, their allowance is put to productive use rather than going to waste.
For a limited company, a modest salary can also preserve the employee's entitlement to certain state benefits, provided it sits above the Lower Earnings Limit for National Insurance. Pension contributions made on their behalf can be an additional, entirely legitimate planning point.
Crucially, none of this works unless the employment is genuine. Which brings us to the rule that trips up most people.
The 'Genuine Work' Requirement
HMRC will look at whether the person actually performs the duties they are paid for. A salary paid to a spouse who does nothing verifiable — no records, no hours, no evidence of tasks performed — is likely to be disallowed as an expense, with tax and possibly penalties following.
The remedy is unglamorous but effective:
- Define the role. Bookkeeping, admin, packing orders, social media scheduling — write down what the job involves.
- Keep evidence. Timesheets, a simple diary of hours, emails, completed work. It need not be elaborate, but it must exist.
- Pay at the market rate. A salary wildly out of proportion to the work done invites questions.
Minimum Wage: Yes, Even for Family
The National Minimum Wage and National Living Wage apply to family employees. The common misconception — that a teenager "helping out" or a spouse "mucking in" is exempt — is simply wrong. The exemptions are narrow, and most family arrangements fall firmly within the rules.
Rates change every April, so check the current figures before setting pay. A sixteen-year-old school leaver working weekends must be paid at least the age-appropriate rate, and hours must be recorded accurately.
Setting It Up Properly
The mechanics are the same as for any hire:
- Register as an employer with HMRC if you have not already done so.
- Operate PAYE. Even if tax and NI due are nil because earnings fall below the thresholds, payroll must be run and reported to HMRC each pay period under Real Time Information.
- Provide a contract or written statement of terms, as employment law requires.
- Keep payslips and records for at least the statutory period.
Many small businesses find payroll software handles the RTI submissions painlessly; others prefer to hand the whole function to their accountant. Either route is fine — the one that is not fine is paying cash in hand and hoping nobody notices.
Common Pitfalls Worth Avoiding
- Paying the maximum salary without the work to justify it. The deduction must match reality.
- Backdating. Employment starts when it starts. Retro-fitting a payroll to last year's figures rarely ends well.
- Forgetting the spouse's other income. If they already earn above the personal allowance elsewhere, the planning benefit largely evaporates — model it first.
- Ignoring pension auto-enrolment. Depending on earnings and age, duties may be triggered. Assess and document the position either way.
A Word on Wider Family
The same principles extend to children, siblings and parents on the payroll. A teenager on the books can be an excellent early lesson in work and tax — provided hours respect child employment rules during term time and the wage is genuine.
The Bottom Line
Employing family is neither a loophole nor a problem — it is ordinary employment that deserves ordinary treatment. Define the role, keep the evidence, run the payroll correctly, and the arrangement will serve both the business and the family member well. If you are weighing up whether it stacks up in your particular circumstances, a short conversation with your accountant before you register is time and money well spent.
