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Can my nanny be self employed, or do I have to employ her??(43 Posts)
A family member who is trained and working in childcare, has agreed to be our nanny.
However, we both feel it would be easier if she were to be self employed, with us just paying her an agreed gross wage, and she sorting her own tax and NI payments.
Is that allowed?
No. HMRC have very clear guidance on this if you Google.
no unless she registers as a childminder and looks after the DCs in her house
No. And if you went down this route and HMRC in vestigated this at a later date, it would be you that would be liable for the £3,000 fine and back pay of tax.
Thank God I asked here!
Oops, I had no idea about that. She works in childcare but has never actually been a nanny before so we were not aware that we would not be allowed to do it that way.
Can I ask why?
the reason is you will be her employer. you will tell her what times/ hours/pay she receives
the difference with a childminder is that they can say they will have your child between x and x hour, and they tell you how much you will pay etc
the first means you are in charge, the second means they are in charge
(above is in simple terms only!)
Could she not be a childminder for you instead? She would have to work at her own home, not yours, and as far as I know family members can childmind without being OFSTED registered? But might depend on how close a relative she is!
A childminder will have to do training/ have house checked by ofsted, ofsted registered, adhere to early years curriculum etc..
I don't think that applies if only minding a relative. Might be wrong but sure I have read that on mumsnet.
I think that if you are a paid childminder you must be registered even if you are looking after a relative.
Thank you so much for all your replies - they have been invaluable!
After some googling, I now understand how my nanny will be employed rather than self employed, so I will go through the correct procedures to pay her tax and NI.
Her house is not really suitable for childminding, and I specifically want DC to be at our home (long hours and quite young baby, so better in our own home).
Thanks again for all the posts.
And forevergreek thank you for that explanation - makes it very clear and simple to understand!
Mumsnet guidance must need updating then as it says
You are allowed to pay a family member to look after your child in your own or your relative's home without that family member being registered as a childminder.
Family member probably should say Relative and define what a relative is in terms of childcare law.
Being a relative does not change employment or tax law. Employment status is determined by various factors and 'big picture' of overall work.
AKiss - a relative does not need to register as a childminder but they can do so if they will be caring for non related children in addition to relations.
All these different rules and regs make it a bit confusing!
We don't want to make an enemy of HMRC though so I will look into how to pay her tax and NI as get employer. It just seems a bit scary and official though!
Thanks so much for all the advice.
You an always pay someone like nanny paye if you can and they will sort everything needed for you
As others have said nannies can be SE and work for one family - only way they can is if they work for several family's and temp / ad hoc / night nannying etc - but that's still debatable depending who you talk to at the tax office
Tbh anyone apart from nannies it seems can be SE so if someone actually gets a gross wage and wants to pay tax - ie a cleaner or gardener etc - then surely better to let them be SE then just fiddle it and get cash in hand
Can't not can be SE - bloody iPhone correcting my text
Yes Blondes, I'll admit I don't really see why working for one family means you can't be SE.
forevergreek I have heard the nanny pay system mentioned on here before. Do you know roughly how much it costs?
Apologies - I have another question...
If my nanny becomes pregnant and has her own baby, what happens about maternity leave/pay? Would we be expected to pay her maternity pay?
Because working for one family (or even two with a share) establishes an employment relationship. There are several factors that are considered when determining what is an employee relationship although none is more significant than others, they have to all be considered together. Three arguably important ones in a nanny relationship are:
Economic dependence - ie your nanny is dependent on you for her income
Control - you are the boss as the employer. This prevents your nanny having the right to take on care of other children without your permission for example
The right of substitution (for SE) - this means your nanny can tell you that next week instead of her coming to provide childcare her friend, who you have never met but your nanny judges to be a suitably qualified, will be coming to look after your child instead. Fine to have someone else mowing your lawn or doing your plumbing but you don't want your nanny to have a right of substitution.
The employment status of your nanny (ie an employee) gives her a number of rights. These include the right to the national minimum wage, paid holiday, maternity leave etc and after qualifying periods: redundancy pay, SMP, protection from unfair dismissal etc
So yes, if she qualifies you would have to pay SMP (and sick pay!!) but you can claim it back from HMRC.
NannyTax or similar payroll companies cost about £300 ish per year.
If I remember rightly you now have to inform HMRC monthly what tax and NI your employee has paid.
Payefornannies.co.uk charges around £135 a year to process monthly payroll.
Yes you would pay SMP but you can reclaim it from HMRC. Your employee would get holiday whilst on maternity leave, that part is not reclaimable.
Don't worry about someone becoming pregnant until it actually happens as you can't refuse to employ someone due to a possibility they may become pregnant. Imagine if your boss did that to you - you would not be happy.
Remember to agree a Gross (that is Before tax/ni deductions) salary, then changes in employee tax code won't impact on your total cost too much.
Use www.mranchovy.com/calc/ to get a feel for what your costs will be. Gross salary+employers NI plus then other costs such as the payroll admin, outings/activities, mileage if nanny uses their own car.
Celine thank you, your points seem to make obvious sense! I suppose when you have never had to be involved in this before, it's hard to get your head round!
Thanks for some ideas of cost nannynick, that is helpful, and I will look into it further.
My nanny is also a relative, and is planning to ttc at some point, so she herself does not want to leave her employed job, to be my nanny, unless we are clear about how maternity leave and maternity pay works. If I had to pay her maternity pay out of my own pocket (whilst also paying for alternative childcare cover) it just wouldn't be feasible. So we just want to know what we are getting ourselves into before we take the plunge!
Thanks again for all the comments, they are very helpful.
You are really sensible to do this. Too many people think taking on a nanny is without responsibilities.
Finding out in advance what your nanny's rights are and your obligations is really important. DirectGov has lots of clear info and Business Links is good for employers. HMRC is also good but a bit wordy.
It's really good to get all this info up front - especially as you are looking at having your relative as your nanny, because anything ambiguous later can get quite tough with anyone, let alone a family member. I'm sure there are plus points of having a relative as an employee, but there are probably some downsides as well as it is probably to hard to completely establish the boundaries..
I guess it will help if you work out and contractually agree in advance things like sick pay / what she is contractually entitled to etc. It seems harsh to do this up front, but if you don't, it's even worse. My nanny contracts have always said Statutory sick pay only - then we decide to pay or not pay depending on the nanny / circumstances.
Also, as you mentioned your relative is planning to TTC, as others have said, the main things to note are her rights if, as and when she does fall pregnant - same as any other employee: time off for ante natal appointments, maternity leave, Statutory maternity pay (reclaimable from HMRC), minimum of 5.6 weeks holiday pay (paid by you, not reclaimable from HMRC), and of course, a return to her job following Mat Leave (there is not automatic obligation to you to allow her to bring her baby along though).
Most of maternity items are reclaimable - the only 'main' out of pocket expense is holiday pay.. your temporary nanny accrue / receive holiday pay, as will your permanent nanny whilst on mat leave, so if you pay her (eg) £250 per week net, you need to budget for approx £1500 extra that she will receive in holiday pay whilst off.
To be clear on SMP: if she is not pregnant when she starts work for you* then she should have worked for long enough to be entitled to Statutory Maternity Pay. You will have to pay Employer's National Insurance on her SMP (only during the first 6 weeks as the rate for the remainder is below the NI threshold) but can claim 103% of the total SMP (including during the second 33 weeks) back from HMRC to make up for this.
However as Nick says, statutory annual leave continues to accrue during Maternity Leave. In practice this usually means that an employee takes the rest of the year's holiday before starting ML and if they do not return from ML they are paid the amount they have accrued in the next year up to the end of ML. This is at the full normal salary (with Employers NI on top of course) and you cannot claim any back.
So there would be some cost to you, and of course if her current employer offers any more than SMP this would need to be taken into account.
* the exact test is a bit more complicated and depends on the Estimated Due Date reported on the MAT B1 form. If the first day of your Last Monthly Period (as confirmed by your 12 week scan which is what should go on the MAT B1) is no earlier than the first Sunday after you start work you should be OK.
"...if you pay her (eg) £250 per week net..."
Glad you mentioned that. Net pay agreements work really strangely on ML: they favour the employee until the end of the tax year (because there is a refund of tax due to unused tax allowance but the employer cannot reduce SMP below the statutory level) and favour the employer in the next tax year (because the employer gains the benefit of the unused allowance). Also note that because the 90% rate of SMP is calculated on gross pay, the nanny takes home a bit more than 90% of her normal net pay in the initial 6 week period. These effects are pretty small though, about £3 a week - just another quirk of net pay that means that everyone should just think gross.
thanks for clarifying Mr Anchovy - I rely on the payroll company so usually just do what they tell me !!!
Thank you for the comments bbcessex and MrAnchovy. This is getting a bit daunting!!
If my nanny wanted to return from maternity leave, but we no longer needed her (for example if our own work status had changed, or our children were now of school age), what would we do? Or if we could only offer her reduced hours?
Or what if she decided not to return to work after having her baby?
I guess it can be a bit daunting to become an employer.. it's certainly given me a few headaches, but it has also been a good thing too. Having a nanny really suits us, but you do have some more responsibilities with it, especially if someone is giving up another job to come to you.
My advice is that you must draw up a clear, specific and formal contract of employment, and make sure both you and your nanny are fully aware of and understand the content before your nanny starts with you.
I'm not an expert on employment rights, so you'd need to check things out, but my basic understanding is, if your needs change - ie you no longer need a nanny because your children have gone to school, or you've stopped work, or you decide on an after school club etc. then the position becomes redundant. If your hours change, then I think that's fine too (you can offer your nanny reduced hours, and she can take them, or you can offer redundancy).. Like I said, I'm not an expert though so I would clarify. I've always had payroll done by an agency, which is really good, because most are able to advise too.
If your nanny decides not to return after maternity leave, then that's her prerogative (sp?) - she gives you notice that she's not returning as per the appropriate timeframes, in line with the maternity leave regs etc. If you decide that she could bring her baby back to work with her, its a subject where there's no hard and fast rules... If you decide it's not appropriate for her to bring her baby with her (pros and cons) then you can stipulate that, and she can decide whether to have her baby looked after and return or give notice.
There is quite a lot you could think about it.. but you could also 'over' think it.. If you've already decided that having a nanny would be a suitable, economic and practical option for you, other than agreeing the terms and formalising the contract in advance, everything else is subject to "see what happens" I guess...
Thank you for the great advice bbcessex. I think you are right, that I am over thinking this. The bottom line is that our relative is brilliant at her job, and we feel lucky to have her as our nanny. So everything else is just a formality!
I'm sure we will find our way through all the red tape, especially with the wealth of advice available on MN.
Thanks again to everyone who posted.
imo it's not the red tape you should be worried most about, it's the cost! The tax etc adds 30% (?) that does not go to the nanny but to George Osbourne.
CMs can have a full-time sole client for a long time and still be "self employed" for tax purposes . CMs in this kind of situation don't, in reality, have any more power in their relationship with "employing" families than nannies do. In theory CMs can negotiate terms etc, but so in theory can traditional employees. There is no logical rationale for the different tax arrangements that apply IMO.
I used NannyPaye to do payroll - I think they charge around £170 a year. I got brochures from a couple of companies and theirs was the only one I really understood. I rang and talked to them several times to have them explain it all to me before and they were brill - whoever answers the phone (and their policy is to answer in the first 5 rings I think) can answer all your questions.
As for maternity leave etc, I think you can build this in or out with a contract which you draw up at the very beginning. In our case our nanny was happy to forgo maternity leave pay, sick pay etc, mileage allowance etc in return for a better wage (I believe you need to pay the minimum wage legally but I may be wrong - someone smarter than me on this thread will know). It seems a bit overwhelming in the beginning, but actually it's quite simple.
"There is no logical rationale for the different tax arrangements that apply IMO."
A childminder is running a business. He or she is free to increase their earnings by looking after other children at the same time as yours and takes decisions on how much to spend on toys, food etc.
A nanny is paid to work for certain hours. He or she is under your control during those hours and you should reimburse them for any costs you require them to incur.
Hi MrA - glad you're hear as you can probably answer my question about didireally's post.
She says "In our case our nanny was happy to forgo maternity leave pay" - can you do that? I thought it was a legal right to get maternity pay.
The word "Statutory" means "By Law" so no, you cannot negotiate on Statutory Maternity Leave, Statutory Maternity Pay, Statutory Sick Pay, statutory minimum annual leave, minimum daily/weekly rest breaks, national minimum wage in most cases or on certain other rights (although the most significant of these, the right not to be unfairly dismissed, does not ordinarily kick in for 2 years).
I was already typing it when you posted nbee
I see your point, mr anchovy, but still don't think the different tax arrangements stack up.
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