Live in to live out conversion query about terms

[AGoodEggButSlightlyScambled]

For the past two and a half years we have had live in au pairs, and are now moving to a live out arrangement. Leaving aside arguments on au-pair vs nanny terminology I'll call this our 'live out au pair'.

We have offered the position to a lovely 19 year old EU citizen who lives nearby and is starting PT college also nearby next month.

We have offered her £120 per week (£8 per hour for a 15 hour week) plus a monthly telephone allowance of £20. During school holidays additional hours are by prior agreement and we have agreed a rate of £60 per day and £35 per half day. There might also be babysitting from time to time but there are no commitments on either side over the 15 hours/£120.

I have used the BusinessLink calculator to work out her holiday allowance so that is covered, but I would be relieved to hear from others that the situation with tax/NIC is right ?

We have said that any tax or similar contributions are her sole responsibility - our reasoning is that income from our position will be below the Personal Allowance level so any additional income raising her above that and triggering tax/NIC is not our concern. Is this correct or am I looking at this too simplistically?

The problem is that direct.gov.uk says "If you pay your employee more than £110 a week you'll have to operate PAYE" and now I am muddled. £110 per week for a whole year is still less than the personal allowance.

I don't want to get this wrong or be unfair to either of us so any ideas on this or directions to a thread/website which explains it (without baffling HMRC-speak!) would be great.

The other issue is about sick leave. What does anyone else do with a live out (assuming sickness absence is legit) - it would great to hear?

I don't think it's relevant but just in case - our live out au pair will be working fours days a week doing after school pick up for D2 aged 10 and keeping a distant eye on a self-sufficient D1 aged 14. Once home there is general cleaning, helping with laundry/a bit of ironing and rustling up the girls' dinner (rather than "proper" cooking) twice a week. D2 is bright and independent and needs very little looking after. The hours are 3.30 to 6.30 x 3 days and 3.30 to 9pm x 1 day. Relevant meals included.

I am a mumsnet novice (somehow "mumsnet virgin" sounds a bit immaculate) so please forgive any un-intentioned misdemeanours! And I look forward to hearing from you. Thanks.

Can you explain more about the school holiday periods.
£60 a day, for how may hours and how many days?

Maybe worth calculating the total number of hours you would expect them to work per year - as knowing that figure may help us give advice regarding the PAYE and also holiday entitlement. You have already used the businesslink calculator - did you do that in hours or days? In the school holidays she would be working more hours (I think, is that the case?) so would build up more holiday entitlement.

Thanks. We have left the school holiday periods deliberately flexible. We don't want to oblige her to work when she may need to study (or want a break herself) and we cannot be sure what time we can have from work to cover holidays anyway until nearer the time.

Having said that ... the longest a day would be is 10 hours but hopefully shorter. We would expect to be able to spend some days with the DDs ourselves so it would unlikely ever be more than three whole days worth across four days and more likely to be less than that.

Having played about with the figures on a spreadsheet I don't think we would be likely to exceed the personal allowance especially not between now and the end of this financial year and April 2012 and next summer when we anticipate this arrangement ending (her course ends then). She has been a live in until now and not taxable.

I am more concerned about sick leave than holiday. I think the holiday thing is ok - I used hours on the businesslink calculator so that I would know what I could safely say was the baseline. I anticipate us using a time sheet to record actual hours and then re-calculating at the time she actually wants some holiday.

Thank you again.

There is a threshold where statutory rights kick in, NICs are creditable and you operate PAYE without making deductions (£102/week) and there is a threshold for the tax personal allowance, where NICs become deductible. The HMRC site has some good stuff induing a statutory payment calculator - will hint out a link for you.

It sounds to me as though you're in that grey zone where you need to operate PAYE but not deduct anything. You can't say it's her responsibility as she's an employee, all you can do is make it clear her wage is gross and fill in the paperwork saying that you are her only job. That way if she gets another job she has to rick the box saying she already has a job (yours) and is taxed on a those earnings and not on yours.

Holidays you may want to phrase on an accrual basis - x hours work = 1 hour holiday.

Calculators

PAYE basics

The information on the Business Link site is confusing (and out of date), fraktious' link to the HMRC site is much better, but briefly:

You can't add it up over a year, National Insurance is calculated each time you pay an employee, and if that is over £102 in any week you must start operating PAYE from then on.

As no (employers) NI is due until £136 a week, you won't normally have to pay this, just fill in the weekly deductions sheet and make an annual return. But if you do use her for an extra day (or even a couple of hours babysittint), you are going to have to calculate and pay National Insurance, and you will also have to do a Tax calculation although it will probably show there is none to pay. If you don't think it is worth using a payroll service for this (although they will help you with a contract and sick pay calculations too), you could use a cheap (or even free) payroll program or online service to do it.

The alternative to this is to pay her a fixed sum of £136 a week (i.e. £120 plus 2 x 8 hours), and have a 'time bank' you can call on - no NI, no tax, you just need to keep track of hours accrued and worked each week.

Finally you can't pay her a monthly telephone allowance without including it in her taxable pay, but you can top a phone up yourself (£20 is a fortune these days - £10 gets you loads of minutes and texts) as long as you require her to use it for work-related calls from time to time.

Of course I am giving you the strict letter of the law here: many people in your situation simply pay £120 a week by standing order and pay any extras cash in hand.

oops, £136 a week (i.e. £120 plus 2 hours x £8)

As I understand it National Insurance is due in any pay period (so any week, if paid weekly) that the pay exceeds the threshold. The same NICs are due weather they are a student or not. HMRC: Students who work in term and holidays.

National Minimum Wage will apply as they are no longer live-in. Not an issue, as for a 19 year old they NMW would be £4.92 rising to £4.98 in Oct 2011. Your £60 a day for 10 hours equates to £6 per hour, so it's above NMW based on the persons age.

In holiday periods you are proposing to pay them 3x£60 a week, so £180 which is above the Class 1 NICs Lower Earnings Limit (for 2011/12 £102 per week).

In non-holiday periods you are proposing to pay them £120 a week (plus a telephone allowance of £20) so again it's more then the Class 1 NICs Lower Earning Limit. The telephone allowance I think may be classed as Earnings - it depends on various things - would you Only be paying for itemised calls? Expenses: Telephones Mobile. A PAYG "top-up" seems to not attract TAX or NICs - so that may be the thing to do. However an iPhone, Blackberry or any other Smartphone isn't considered to be a Mobile Phone by HMRC.

Have you spoken with HMRC about this? The New Employer Helpline would be a starting point. Call them armed with provisional figures for the year so that you can say for x number of weeks per year you expect your employee would earn x amount per week, and for y number of weeks per year you would expect your employee to earn y amount per week.

I feel you should get some professional advice on this... you should not assume that because in total in the year they would not earn above their personal tax allowance that you therefore don't need to do anything. To me it appears that you will be paying above the Class 1 NICs LEL so you do need to do some recording of National Insurance.

Oh cross-posted there with MrAnchovy... glad he's spotted this thread.

Thanks so much - you have been very generous with your responses and this information and advice has all been very helpful