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Nanny Employers to contribute 3% towards nannies pension - from Oct 2012 / 2017(72 Posts)
I have just heard on MoneyBox that employers of nannies will not be excluded from the upcoming work pension scheme, so employer contribution will be 3%, employee contribution 4% and Government adds 1%.
Good that the BBC asked about nannies... it is something I tweeted to @R4Today when they discussed the work pension scheme, so looks like they took notice and asked the specific question.
It will apply if the employee is aged 22+ and earns £7475+ per year. It starts from Oct 2012, though will be phased in between then and 2017. (info from the link above)
What are your thoughts... will this make much of a difference to nannies salaries? Will it result in more employers of nannies not operating PAYE?
That is wonderful that you have found such an excellent solution, Madrigals, with all parties happy.
Au pairs are obviously in a very different position, being young and temporary helpers, who gain as much from the experience of being in another country as monetarily. My comments were aimed at career nannies who may spend a lifetime in the profession.
It's great that you have something that works so well for you and is also such a good opportunity for your au pair.
Someone suggested nurseries but if you have 3 under 4 as we did at one point it is much more expensive to buy 3 London nursery places and then you don't have someone to take the oldest to a few mornings at a nursery school etc etc.
Madrigals - But that is because, with a nanny, you are getting a personal service instead of group care and you will always pay considerably more for that. A nanny works in your own home, looking after your children only, according to the standards you set. She will also look after your children when they are unwell, which childminders and nurseries won't do, thus removing a major headache for parents. A nanny is the nearest thing you will ever get to the parent's own care which is why you will always pay more.
Incidentally, the fact that a nanny provides this personal service for one family only is why they will almost always be classed as an employee and not self-employed.
At the moment, no form of childcare is tax-deductible (nurseries and childminders included). It may be that, in time, childcare will be made tax deductable but, until then, nannies should have the same employment rights as all other workers. The vast majority of parents employing nannies have pension rights themselves and (especially these days) consider that as a very important part of their employment package. I'm amazed that anyone would employ someone to do such a vital and personal service for their family and be happy to wash their hands of any responsibility for that person's wellbeing in later life. If someone doesn't slowly build up a pension throughout their working life, they can be left in real hardship in old age.
Jane - Of course parents will have less of their own income left if they have to pay for their nannies' pensions, but on some level, it still benefits them overall to employ a nanny or they wouldn't do it. Some parents don't work just for money, but because they don't want to stay at home looking after children 24/7 or because they want to use their professional skills. Many, as in your case, may not see much (or any) financial benefit at the time they employ a nanny but know it will pay off in the long term so overall, it makes good sense.
Yes, it's unfair it's not tax deductible. I don't need a nanny any more. Everyone I pay in my business that money comes off the turnover and I am taxed on what is left. Only with nannies is there no tax deductability which makes it very expensive for most people who employ nannies who are not rich parents (most of them).We had a year when like the GP above one of us worked for nothing ( we both earned the same that year). It paid off over time but it was certainly very hard and the admin is ridiculous. We should be allowed to pay the nanny gross and she then deals with the tax given this Government wants to ease the burdens on small employers.
Oh, I am totally amicable about this! I have no personal stake in this at all - my views arise from a general commitment to social justice. My point is that all employers have unavoidable duties towards their employees - and some employers are not businesses but private individuals.
And every other employer pays their employee's taxes off the income of the company before it is taxed . Only nanny employers don't. That is my point. I would have no objection to contributing to a pension if I wasn't being ripped off by HMRC for my decision to play by the rules.
But anyway. Lets amicably agree to disagree!
That's not the point, dietcokefan!
Employers are responsible for paying the costs associated with having people work for them - it doesn't matter whether the employer is a "household" one or not. If you take the benefits of being an employer, you have to shoulder the responsibilities as well. It comes as package. If the disadvantages outweigh the benefits, there are other childcare options (nursery, childminder) available.
This thread is specifically about pensions. I do not see why employees who do such vitally important, and skilled work, for comparatively low pay should not be provided with financial security in old age, like all other employees.
If you pay for nursery or a childminder that comes out of net pay as well, so it's the same for all childcare isn't it?
what other employer, other than a household employer, pays their employee's taxes out of already taxed income? name one!
Dietcokefan are you saying that a nanny earns only twenty percent less than yourself as a GP?
yes, that is effectively what I am saying. When you factor in the nanny's income tax and NI, and the fact that I am paying her gross income out of my taxed income, if I employed her for the three days I work (and of course including my commuting time, so her day is about 90 minutes longer than mine), her wage and taxes plus mileage and expenses (expenses are fairly minimal here) would add up to 80% of my take home wage. I am lucky that my employer pays my litigation insurance, many don't and if I had to pay it myself and pay a nanny for 3 days I would probably be paying to work.
TBH I'd rather be at home with the kids, but if I stop work for 5 years it would be almost impossible to get back and it isn't worth giving up all that training. But it is a heavy price to pay. I have deliberately chosen a well qualified nanny, and to pay her above board in order to retain someone good, as my youngest is small and there isn't much that is more important than who looks after your children. But I have to say, if it wasn't for the continuity for the kids, I would employ two people for one day a week each and pay them cash (which would be legal). I'd save a fortune.
So not all nanny employers are fat cats out to exploit their serfs! Some of us are just doing our best.
As far as "double taxation" goes, it is a common feature of everyone's general spending.
Every time you buy anything subject to VAT out of your taxed income (pretty well everything apart from food, children's clothes and books) you are paying tax twice. Likewise, Stamp Duty when you buy a house. Every time you buy petrol or alcohol, a large proportion of the price is duty to the government. "Double taxation" is a normal part if everyday life.
Allsfair >It is completely fair, in my book. If you employ someone, you pay them properly, including salary, sick pay, holiday pay, and pension.
Up until now, it is not something that small employers have paid. Small employers have not had pension schemes. So it is an extra cost to all small employers.
dietcokefan >I object to paying her income tax and NI out of taxed income, that is double taxation at its worst.
You should not be doing that anyway, that only happens in a Net pay agreement. If you agree a gross salary, then you DEDUCT income tax and NI from your nannies salary and pay it to HMRC on your nannies behalf. Your cost as employer is Gross Salary + Employers NI + expenses.
What I think you may mean is that you don't feel it is fair for childcare to be tax deductible... so coming off your gross salary, rather than coming off your net salary. Would that be right?
I feel that there should be choice about pensions. It is not clear at present, at least to me, what happens for those people who already have a pension they pay into. Do they stop paying that and start up a work pension? Can pension pots be merged, so that annual admin costs can be reduced? I already seem to have have two pensions, plus the state pension (if that still exists when I retire).
Dietcokefan are you saying that a nanny earns only twenty percent less than yourself as a GP?
The employer contribution is surely on top of the gross wage, like the employers NI?
That's why it is being so slowly phased in amid employer grumbling.
I know my company will be moving to it as on top of salary as I was reviewing next year budgets and wage costs have increased.
Sorry, missed out "relationship", as in employer-employee relationship.
The whole tax, national insurance and pension situation can be avoided either by using a nursery (where the nursery pays these benefits on behalf of the staff) or a childminder who is self employed and not entitled to these benefits.
People employ nannies precisely because they want the employer-employee, which allows them maximum control over how their children are looked after - they, as employers, set the terms and the nanny is obliged to follow them. For the luxury of being in this position, parents must accept the responsibilities of being employers as well as the benefits - it is as simplest that.
As an employer of a nanny I think this is a great idea. Nanny employment is ridiculously insecure and most contracts offer the bear minimum in sickness benefit etc because families can't risk big duplication of childcare costs.
I think it is only fair and right nannies are protected with a pension.
And didn't the government just say something about a tax cut for small employers? We're nanny employers included in that? If so we are still better off.
People need to stop seeing nanny pay as net pay plus tax and NI. It's a gross wage. There's an argument for exempting them from employer NICs and possibly pension contributions but the nanny's contributions to the system need to be paid and come from the nanny's gross wage.
I know employees already in the scheme where at present employers have to pay 1% and employees in return lose 1% of their salary. The employer pays the 1% on top of the gross salary. The employee loses 1% of their salary (less tax relief) for their contribution. I think it's not until at least 2016/17 for those employing fewer than 30 staff.
The simple answer for employers is no pay rise until the extra 1% cost has been covered from what otherwise would have been the pay rise.
Nanny employers are taxed almost 3 times - first they pay tax/NI on their pay; then out of that net pay they then pay the nanny's tax and NI; finally they also pay employer NI and do not even get the new tax break from £2k a year NI which other small employers are getting.
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