Calling those with a nanny - am confused about the real cost once you've sorted the tax issue, can anyone enlighten me?

[docket]

Hi

I'm going back to work 3 days a week and need to find childcare for my 2 children (10 month dd and 2.6 ds), I live in London

I thought I'd made up my mind that a nanny would be the best option but I've been bamboozled by my boss who tells me that there are tax implications and that you end up paying a lot more and it's a real faff to sort out (so what I had thought might be £9 an hour is actually £12 or something). This makes the difference between being affordable Vs the childminder option and not being.

Am now thoroughly confused, can anyone shed any light?

TIA

docket

bump!
(sorry, I know this is very dull)

Most nanny agencys advertise the nannys wage as £x net per hour. This is how much the nanny takes home, but on top of this, as his/her employer you would have to pay the nanny's income tax and NI, and also employers NI. The calculation is not straightforward so the easiest way to get an idea of the cost is to use the tax calculators on www.nannypaye.co.uk, or www.nannytax.co.uk.
The most important thing, is that if you decide to use a nanny you put a gross salary figure in the contract, that way you won't be hit for unexpected tax costs (eg. if nanny has underpaid tax earlier in the year).
On top of the cost of salary you also need to think about how you would cope with nanny's holidays/sick leave (you may need to budget for emergency/temp nanny for this), also you will need to pay for nannys and children's food, days out, playgroup fees, petrol, increased car insurance if the nanny drives your car (or car allowance if they drive yours), heat/light of your home since it will be being used during the day, and even wear and tear on your toys.

Oh and we also paid for nanny's training eg. renewing first aid cert, and surestart registration, and some people pay for a mobile phone for the nanny to use.
It does all add up and it's unlikely to be cheaper than a childminder - but then I couldn't find a childminder with spaces for both my children at the same time., and you do get the benefit of choosing the hours, kids laundry and tidying up done and most importantly in my experience, you come home to snuggled up tired but happy children, instead of having to pick up overtired, screaming stroppy children and drag them home .
Good luck - I really recommend a nanny-share - you can try www.sharingcare.co.uk or www.sharingcare.co.uk to find local families who might want to share.

Thanks Millarkie, really helpful info and links

Just to say even if you put a gross figure in the contract you are still liable for EmployERS national insurance which adds another 13% on to the cost. the gross figure will be what the nanny gets before her yax and EmployEES national insuracne is taken off.

Her Tax even

With nannies (part-time ones especially), always agree a Gross Wage in the contract. Should there then be changes to the nannies tax code, you do not get a nasty shock.

Nanny agencies often advertise pay rates as NET. However, an increasing number of agencies are now giving Gross figures and I hope to see that increase over time.

To calculate how much employers NICs are likely to cost you, use an online PAYE calculator such as E-Gismos UK Pay Calculator which will break down a gross salary into Income Tax, Employees NI and Employers NICS. You can find out more about your tax responsibilities as an employer in the HMRC New Employers Pack. The P49 - Paying someone for the first time booklet is worth a read as it takes you through your first payroll run.

The tax/ni side of things with one employee is not difficult. Yes it takes time, but HMRC make it as easy as possible, providing a CD-ROM for Windows PCs which does a lot of the work for you. They also provide a new employers helpline should you get stuck or just need reassurance that you are doing things right. As others have mentioned, you can also use an agency to do your payroll for you.

If you have agreed a net wage of £9 per hour, for say 30 hours per week that is £270 per week, rougly £348 gross I used Listen To Taxman to calculate this figure
Which is around £18100 per year, so agree a Gross Figure of a figure similar to this in the contract. Using e-gismos calculator, Employers NICs is around £1673 per year.

Based on 30 hours per week, 52 week year, this is 1560 hours per year. (£18100 + £1673) / 1560 is around £12.68 per hour.

So yes, your friend is correct... if you have agreed £9 net per hour, the real cost to you is over £12 per hour. If £9 per hour is Gross then of course the figures are all a lot a different.

With 2 children, a childminder in my view is often a little cheaper than a nanny. However there can be disadvantages, such as a childminders opening hours and their sickness policy (nannies tend in my experience to be more willing to care for a child with minor illness, whereas childminders have to protect the other children in their care).

You will find a lot of information in this Mumsnet section regarding Childminders and Nannies which should help you understand the differences and thus help you decide which form of childcare would work best for your family.

I think if you were full time (40+ hours per week) and offering a live in position for two young children, you would find the nanny more attractive. But, for only 3 days per week, the position will be harder to fill and the financial advantages might not be there.