Nannies and employment law: payroll, pension and taxes explained

Hiring a nanny can be many parents' first time employing someone. In this article, Kirsty Wild looks at the legal and financial sides of things.

Do you know the law?

For many parents, hiring a nanny will be their first time employing someone. So from wages to taxes to insurance, what are the key things any first-time ‘employer’ should know?

This article looks through the legal and financial aspects of hiring a nanny.

Contract of employment

First things first, when you formally offer employment to your nanny, you will both need to sign a contract of employment.

Once drawn up, this should make clear what is expected from both parties. The more detailed it is, the better. Make sure to include crucial details such as your nanny’s salary, working hours, holiday entitlement, sickness procedure and notice period. 

A cheaper alternative to a nanny is an au pair, read more about the difference between the two here.

Job description

As part of the contract, you’ll also need to include a detailed job description setting out the nanny’s exact duties.

Take notice of what their daily routine should look like, and include further duties such as whether they are required to prepare meals or regularly take the children to playdates.

This document is also your chance to set out certain requirements of the job to avoid any future problems. For example, make it clear if the nanny must be flexible with working hours, or if they need to take holiday at certain times of the year.

Payroll

As their employer, you need to take care of your nanny’s tax and national insurance contributions.

Don’t ever be tempted to pay them in cash because you could end up with fines from the HMRC. You should issue a payslip each week or month, and this must state what you have deducted and why.

The National Insurance contribution is paid by both of you and is reliant on their rate of earning. Similarly, you must take into account their earnings to deduct and pay the correct tax.

Busy working parents often enrol a service to take care of the financial side, with companies like nannytax.co.uk offering a full PAYE service for employers of nanny’s.

Statutory holiday, sickness and maternity/paternity pay

When you take on an employee, you need to be mindful of extra expenses that could be due to them such as statutory holiday pay, sickness pay and maternity or paternity pay. Where necessary, it is a legal requirement for you to ensure these are paid.

Full-time workers are entitled to at least 5.6 weeks holiday pay per annum, with part-time workers entitled to less (this can be worked out using the Government calculator). Statutory sick pay is required once an employee has been off work for four days, and could last up to 28 weeks if they qualify.

Statutory maternity pay can be paid for up to 39 weeks, while paternity pay can last for up to two weeks, and both are based on a percentage of their salary.

Pension

If your nanny earns over £10,000 a year and is between the age of 22 and retirement age, then you must also pay into their pension scheme.

As they qualify for a workplace pension, it is your responsibility to ensure this is paid. Both you as the employer and your nanny will contribute to the scheme; there are payroll providers that can do this for you.

It needs to be done promptly, as the auto-enrolment responsibilities begin on the employees first day 

Insurance

As an employer, you are legally required to hold employer’s liability insurance. In the event of your nanny experiencing illness or injury while working for you, it is crucial you are covered. By enrolling in a policy, you could save yourself from potential, future headaches.

If your nanny was to travel abroad to assist you on your holidays, you need to make sure they are covered internationally too.

Car use

If your nanny is required to drive your children to and from appointments, you need to decide if they will use their own car or one provided by you. If you provide a car, you need to ensure that your nanny is insured to use it, and if they use their own car they need to be insured for business purposes.

When it comes to expenses such as petrol, diesel and running costs, it is important to come up with an agreement on how they can claim such expenditure back from you.

Wages

When deciding on the salary you will pay your nanny, you need to be aware of the National Minimum Wage and the Living Wage, but also be aware you could be paying considerably more. A live-out nanny is covered by both schemes, and the rates change depending on their age.

A nanny aged 21-24 years old must receive at least the main rate of £7.38 per hour, while a nanny aged 25 or over should receive at least the living wage of £7.83 per hour. If your nanny is live-in, they are not covered by either scheme, and you can also offset some of their accommodation costs from their wages to the maximum of £7.00 per day.

Tax-free childcare

If both parents, or a single parent, is working, the government has introduced a new tax-free childcare scheme which will replace childcare vouchers.

As long as your nanny is enrolled as a childcare provider within the scheme, you can apply to receive funding to help with childcare costs.

Parents with children under 12 are eligible, and you must not earn over £100,000 or be receiving any other form of government support towards childcare. Once accepted, you could receive up to £500 a month per child, which equates to £2,000 per year!

For more ways to beat the taxman read the article 20 ways to pay less tax here.

Kirsty Wild is Head of Sales and Marketing at Nannytax. The views expressed in this article do not necessarily represent those of loveMONEY.