Yes, they often employ family members. Unlikely to be because they are the best person for the job.
This has been banned since 2017 in respect of new hires.
There is usually quite a difference between the sort of people MPs employ in Westminster (tend to be young and just out of uni, very party political, do it for a couple of years before going into public affairs or something), and those they have working for them in their constituency (often a bit older, not-overtly party political, working part time, do it for years and are the casework handling experts). Just reflects the sort of work done in each base I think.
But yes, an MP who loses their seat makes all their staff redundant as part of winding down their office.