Hiring Your Child in Your Business: Payroll Setup and Records You Need

What it means to put your child on the books

When you hire your child, their pay is a business cost the same way any team member's pay is. It goes through the books. It shows up in the payroll lines. It gets recorded against the days they worked. It is not an allowance and it is not household money. It is pay for work the business needed done.

A lot of owners mix this up. They hand the child cash from the register and call it pay. They move money from the business to the home account and call it a wage. Neither one leaves a record the books can use. When the pay has no time record and no pay record, the books do not show it the right way.

The clean way is to put the child on the books the same way you put any other hire on the books. Their pay runs through the payroll. Their time gets recorded. Their pay record shows what they earned and what came out. When the month closes, the pay is in the right line and the records back it up.

We keep the books and run the payroll. We do not tell you whether your child can work, how old they need to be, or what the rules are where you live. Those are calls for your CPA or a lawyer who knows your situation. What we do is keep the records clean once you have made the call.

The records you need before the first pay run

Before the first pay run, there are a few records to have ready. These are the ones we ask for so the books stay clean from day one.

Here is what to have ready.

• **A time record.** The days and hours the child worked, kept the same way you keep time for anyone else.
• - **A note on the work.** What the work was, so the pay matches a real job the business needed.
• - **The pay rate.** What the child earns, written down before the work starts.
• - **The pay record.** The document that shows what they earned and what came out.

The time record is the big one. A wage with no time record is hard to back up. The same habit you use for the rest of the team works here. The child writes down their hours, or you keep a sheet, and we tie it to the pay run.

The note on the work matters too. The pay should match a real job the business needed done. Filing, cleaning, data entry, helping on a job. When the work is real, the pay is a real cost. When the record shows the work, the books tell the story the right way.

We do not set the pay rate or decide what is fair. That is a call for you and your CPA. We take the rate you give us and run it through the books.

What a pay run shows in the books

When the pay runs, it shows up in the books the same way any payroll does. The wage goes in the payroll line. What comes out goes where it belongs. The pay record gets tied to the run. When the month closes, the payroll lines match the pay records and the bank.

Here is what we record for each run.

• **The wage.** What the child earned for the days worked.
• - **What came out.** The amounts taken out of the pay, recorded the same way for every team member.
• - **The pay date.** The day the pay went out, so it lands in the right month.
• - **The pay record.** The document that shows the whole run, tied to the books.

We match each pay run to the bank. When the pay goes out, the bank shows it. We tie the two together so the books match the bank to the penny. When something does not match, we find it and fix it before the month closes.

The pay goes in the month it was paid, not the month it was earned. That keeps the books on the same rule for everyone. If the child worked late in the month and the pay went out early the next month, the pay shows up in the next month. We record it when it moved, so the books and the bank agree.

Keeping your child's pay separate from household money

This is the part that trips up a lot of owners. A child's pay and household money are not the same thing. The pay is a business cost. Household money is personal. When the two mix, the books get messy and the records stop backing up the wage.

The clean way is to keep the pay in the business and let it move the same way any pay moves. The child can have their own account. The pay can go to a savings account for them. The point is that the pay runs through the books first, and then it is theirs. It does not come out of the register as cash and skip the books.

Here is the difference in plain terms.

When the pay runs through the books and the household money stays out, the records back up the wage and the books stay clean. Your CPA can read the books and see a real wage with real records behind it, not a guess.

What your CPA decides, not us

We keep books and run payroll. We do not prepare taxes. We do not give tax advice. We do not tell you whether you can hire your child, how old they need to be, or what the pay has to look like for your CPA to use it. Those are calls for your CPA or a lawyer.

What we do is keep the records clean so your CPA has good numbers to start from. The time record is there. The pay record is there. The wage is in the right line. The pay matches the bank. Your CPA can read the books and make the calls.

When the questions come up about whether the pay counts, or what the rules are, we point you to your CPA. We answer their questions about the books, but we do not give the advice. You can read more about how we keep the books on our bookkeeping page, and about payroll on our payroll page.

A situation we clean up

The pay that never made the books

A business owner hires their child to help with filing and data entry over the summer. The owner hands the child cash from the register now and then and calls it pay. No time sheet. No pay record. No line in the books. At year end, the CPA asks what the business paid out in wages, and the owner does not have a number that matches the work. The books show the register going down, but no wage line to back it up.

Here is how we handle it. We set the child up on the payroll the right way. We start a time sheet for the hours worked. We run the pay through the books at the rate the owner set. We tie each pay record to the bank. We catch up the open months one at a time, from the oldest forward. Then the routine runs every month, so the next year end starts with the wages in the books and the records on file.

Common questions

How do I put my child on the books? The same way you put any hire on the books. We run their pay through the payroll, keep a time record for the hours they worked, and tie the pay record to the books. The wage goes in the payroll line and the pay matches the bank.

Do you decide whether I can hire my child? No. That is a call for your CPA or a lawyer. We keep the books and run the payroll. We do not give legal or tax advice about whether you can or should hire your child.

What records do I need to keep? A time record for the hours worked, a note on the work, the pay rate, and the pay record for each run. We tie them to the books as they come in so nothing is missing at year end.

Do you prepare taxes? No. We do not prepare taxes. We keep the time records, the pay records and the books tied together, and your CPA makes the calls. You can reach us on our contact page if you want a team that keeps your child's pay clean on the books.