Can my nanny be self employed, or do I have to employ her??

[AlwaysOneMissing]

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?

TIA

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.

Good luck!

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?

TIA

Hi there,
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.

here hear

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.