In my line of work, I often see first hand the difficulties which employers like you can face when they have employed friends and relatives but have failed to document the employment formally.
Things usually start well initially. At the outset, those involved trust and understand each other and everyone is focussed on the same business goals. There are many benefits to working with those you know. You know their strengths and weaknesses. They know yours. You communicate well. You are automatically going to be a winning team.
Things can be fine for many years when suddenly, out of the blue, a problem arises. There can be a multitude of reasons for things going wrong. Maybe, it’s a dispute over annual leave or a change in the dynamics of the business perhaps because someone key leaves or passes away. Sometimes there is a difference of opinion about the direction of the business. Alternatively, people often fall out about something fairly minor but the dispute snowballs.
It is so often the case that where those employed were friends or family, no one sought to formalise arrangements in any way and there is no contract of employment. When things are going well, there doesn’t seem to be any reason to spend the time or money putting the documentation in place. It can also feel awkward making such formal arrangements with a family member or a friend you have known for years. The problem is that where things do go wrong and sometimes they do, a fierce dispute can ensue which can lead to an Employment Tribunal case.
Indeed, employers are legally obliged to provide a Written Statement of Employment Particulars (akin to a basic contract of employment) to all employees, whose employment is expected to last more than one month. Such a statement should be issued within two months of the commencement of their employment and should also either include or point to the availability of the company’s disciplinary rules.
Ultimately, having clear documentation to govern the working relationship is good for everyone. It’s much better all round if everyone knows where they stand. A level of formality reminds everyone that after all this is a business arrangement.