nanny contracts - do I pay tax on overtime?

[oranges]

Hi, I'm trying to draw up a contract for our nanny. The basic deal is that we will hire her for 40 hours a week, and pay her NI and tax etc. But there's a good chance we'll need her for a few hours extra a week. Do I pay for those hours at the same net rate and add on tax etc or just pay her cash at a babysitting rate? ANd is that income taxable?

Can't answer your question really, as I use Nannytax (saves a HUGE amount of hassle & difficulty.) I pay for babysitting at a slightly different (cheaper) rate - because they kids are asleep so less work, but I pay the tax etc. on it. Yes, babysitting income is taxable.

All income is taxable - so that includes overtime and babysitting.

Also, you should be putting a gross amount of pay into her contract.

ah, thank you. So is the gross the hourly rate plus tax? argh.

No gross is the hourly rate that you deduct tax and n.i. from, but not employer's n.i.. That is not part of the employee's wage - but you pay it as an employer.

Sorry, reread - did you mean "is gross the net hourly rate plus tax?"

Yes, you need to work out what the rate of pay is including tax and n.i. - that will give you a gross rate to put in the contract.

calculator.kistax.com - will let you see example figures.

For this calculator:
If they are a full-time nanny and you don't yet know their tax code, use 647L
If they are a part-time nanny, use tax code BR (as they may already be using their personal tax allowance in another job)

There are various payroll services around which will do most of the tax side of things for you. Currently I tend to suggest www.payefornannies.co.uk who have been doing my pay successfully for several years.

Keep in mind that taxation changes throughout the year. Things can affect the persons tax code, thus meaning a new code gets issued. Also personal tax allowance changes from time to time. For example there are changes in April 2011.

that site is really helpful, nanny nick, thanks. Its complicated by the fact that for the first two months she will work three days for us, as she is finishing a course, then go full time. Should I draw up two separate contracts?

all income should be taxed

i would never advise anyone to fiddle tax

but

no one would know if you paid cash for those extra hours ......

I starting writing NO but having thought about it, yes - having a contract initially for the 3 days a week... then creating a revised contract for the 5 days a week would make sense.

There will be complications in working out holiday entitlement, as the statutory minimum will be pro-rata when working 3 days a week. So consider how you will work out holiday.
ACAS: Holiday Advice Leaflet
BusinessLink: Holidays - Atypical Workers

I use PAYE for Nannies - recommended on here by someone (nannynick maybe?) and brilliant (half the price of nannytax last I checked).
Please, please agree a gross rate. I have been in a position where I agreed net and the employee changed her tax code and it looked to cost me £200+ more a month - luckily she agreed to switch to gross in the contract as there was no way I could pay that!

Can I ask one more question - I'm employing a nanny - its her first nannying job - and I was going to offer 7pounds an hour net. The agency I spoke to suggested that's quite generous. Is it?

oranges - it all depends on your area/age/exp of nanny

first nannying job then yes possibly generous as nmw is just under £6 gross and £7 nett is prob £9gross

always offer gross wage and the agency should be telling you this but often dont

We are in central north London, Shes young - 22, has nursery experience and qualifications. The key thing is she is flexible about the hours we need.

Sounds just like my nanny oranges - she is same age, nursery experience and child care qualification. I pay her £8 hour gross - and I'm up north. I think a London nanny might expect more...

Thank you. I've just figured its £8.80 gross. I think it seems fair for looking after two children (one school age, one baby).

£8.80 gross for a first job is fair for London IMO but after a year or so nanny may start looking to earn more. The rise in earnings over the first 3 years or do can be very steep.