This article is for owners of growing businesses who are about to put a partner, a parent, a sibling or an adult child on the books, or who already have and have never had the arrangement looked at properly. You will get a clear view of what employing family members in business actually obliges you to do, where the real costs sit, and the four things that turn a sensible arrangement into an expensive one.
None of this is an argument against involving family. Family businesses work, and the person who will do a night shift at short notice for the fifth time is often related to you. The difficulty is that family arrangements get made in the language of family and administered in the language of tax. The two do not translate on their own.
The rule that catches people out
There is no family exception. A family member working in your business is an employee if they are working as one, and the obligations that attach to an employee attach to them.
That includes super. The ATO’s guidance on whether you have to pay super is explicit that eligibility does not change because the worker is a family member, a company director, casual or part time. The rate is 12%, and it is calculated on qualifying earnings. The payment rhythm changed from 1 July 2026 as well. Contributions generally need to reach the fund within seven business days after payday, rather than quarterly. If your relative is under 18, super is payable where they work more than 30 hours in a week. The ATO sets out the age and hours conditions on its page covering whether you have to pay super.
The same logic runs through PAYG withholding, a tax file number declaration, single touch payroll reporting, leave entitlements, workers compensation cover and award obligations. “They only help out on weekends” describes a work pattern, and it does not put anybody outside those rules.
Cost one: the payroll tax threshold you were nowhere near
Payroll tax is the one that catches growing businesses, because the moment of exposure arrives without any announcement.
In New South Wales, payroll tax applies to Australian wages above an annual threshold of $1,200,000, at a rate of 5.45% for 2026-27. Revenue NSW publishes the current figures on its thresholds and rates page, and they are worth checking each year rather than remembering.
Two things about that threshold matter for family businesses in particular. Wages include superannuation contributions and a range of other payments, so your payroll tax wages are higher than the salary line in your accounts. Grouping rules can also combine related businesses under common control into a single group with a single threshold between them, which is precisely the shape a family that owns two or three trading entities tends to have. A set of entities that would each sit comfortably under the threshold alone can find itself grouped, over the line and registering for a tax it had not budgeted for.
Bringing three family members onto the payroll at market rates is an entirely reasonable thing to do, and it can also be the step that carries a group across the threshold.
Cost two: paying the wrong amount, in either direction
The ATO’s interest here is straightforward. A payment to a family member is deductible to the extent it is a genuine payment for genuine work at a reasonable rate. Pay a relative well above market for light duties and you have created a deduction that can be denied. The shortfall is assessed and penalties apply.
The other direction causes more trouble in practice. Family members work for nothing, or for a token amount, for years at a time. That feels generous and costs the business nothing today, while it also builds no super for that person and creates no employment record. It can leave a genuine contributor with no claim on the value they helped create when the business is sold or passed on. We see the consequences of that in succession and transition conversations, by which point it is fifteen years too late to fix cheaply.
The test to apply is worth writing down. Would you pay a stranger this amount for this work? If the answer is no in either direction, the arrangement needs adjusting.
Cost three: distributions that look like wages
Many family businesses run through a discretionary trust, and the temptation is to reward family effort with a distribution rather than a wage. There are two separate problems with that.
The first is that a distribution is a payment of trust income rather than a payment for work. It creates no deduction for the business, builds no super and establishes no employment record. Where somebody has genuinely worked, paying them as an employee is cleaner and more defensible.
The second is section 100A. A beneficiary’s entitlement that arises from a reimbursement agreement can be disregarded, with the trustee assessed at the top marginal rate instead. Broadly, a reimbursement agreement is one where a beneficiary is made presently entitled to trust income, somebody else receives a benefit in connection with the arrangement and a purpose of the agreement is reducing tax. There are important exclusions, including where the beneficiary simply receives and uses their entitlement, where the arrangement is an ordinary family or commercial dealing and where the beneficiary is under 18 or otherwise under a legal disability. The ATO explains the provision and gives worked examples on its trust taxation and reimbursement agreement page.
The arrangement that attracts attention is familiar. An adult child at university is made presently entitled to income, and the money stays in the business or funds household costs rather than reaching them. Whether that lands inside or outside the ordinary family dealing exclusion depends on the facts, and the facts need to be documented while they are happening.
Distributions to minors carry their own penalty. For 2025-26 a resident under 18 pays nil on eligible income up to $416, then 66% of the excess above $416 up to $1,307. Income above $1,307 is taxed at 45% where it is not excepted income. Employment income they genuinely earn is treated differently from a trust distribution, which is another reason to pay a working teenager as an employee rather than distribute to them.
Cost four: the record keeping that gets skipped
The paperwork that makes all of the above defensible is short, and it is the part we most often find missing.
For each family member you want a written record of the role and duties, the agreed rate and how it compares to market, plus timesheets or some other reasonable record of the hours actually worked. Alongside that sit a tax file number declaration, payroll processed through single touch payroll and super paid on the payday rhythm to a fund of their choice. Where trust distributions are being made, you also want a resolution before 30 June with the reasoning recorded and evidence of how the entitlement was actually dealt with.
None of that is onerous when it happens in the ordinary run of business. All of it is close to impossible to reconstruct years later under review. Reconstruction is when arrangements that were fine on the facts start to fail on the evidence.
Getting the arrangement right before it grows
The right sequence is to decide the structure first, then the roles, then the payments. It is easy to do that in reverse, and the structure then ends up carrying arrangements it was never designed for. A business structure review is the right place to test whether the entity you have still suits a business with three family members drawing income from it. Our broader accounting and advisory services cover the payroll and reporting side of it. Retail and e-commerce businesses raise this early, since family labour is often what makes the trading hours work, which we see constantly in our retail and e-commerce practice.
If you are about to bring a family member into the business, or you have several already and have never had the arrangement reviewed, book a call at pp.tax/contact/. Employing family members in business is entirely workable when it is set up as employment, and expensive when it is set up as an understanding.