Nanny pay increase and bonus: advice, please.

[Penthesileia]

We've just offered a job to a great nanny we interviewed, and I'm in the process of drawing up her contract.

I'd like to include details of a pay increase at the end of the year, and of a bonus, as a way of incentivising her and encouraging her to stay with us over the next couple of years.

What would be a reasonable %age increase year-on-year, do you think?

What is a suitable amount for a bonus?

We are not wealthy by any means (so can't offer the nanny anything extravagant, even if we'd like to) and the nanny will be our number one expense over the next 3 years. But getting it right matters to me, so we do have some wiggle room for pay increases and bonuses.

TIA!

When I ask about the bonus, I don't mean what numerical amount is suitable, rather something like, is 1/2 a month's salary, or one month's salary, etc. suitable?

Depends on her age? Experience? Where your based?

Yes, of course!

She's nearly 24, has 5 1/2 years of experience in a nursery (with lots of associated qualifications and certificates) and one year of nannying experience.

We are in Cambridgeshire.

Thanks!

I included in my nanny's contract a specified salary increase after the first 3 months and a salary review after one year - but not a specified increase. You could, I suppose specify an increase at the rate of inflation? Or you could have a specific number if you prefer - 2-5% I would consider reasonable.

On the bonus - I have always paid 2 week salary but I do not have this in the contract. It is discretionary and depends on the nanny's performance as well as my bonus. I would much rather keep my options open there.

Hope this helps.

I wouldn't suggest including those kinds of details in the contract, as the contract would then contractually bind you to giving a pay increase, when the situation one year may be that you can't afford to give that increase.

Perhaps instead include something about there being a pay review once a year.

What would be a reasonable %age increase year-on-year, do you think?

It is very hard to say. Keeping up with inflation perhaps, though what figure would you use for that... Consumer Price Index, Retail Price Index, something else? UK Inflation Chart (BBC)

What is a suitable amount for a bonus?
Any bonus via salary will be subject to tax. So you may want to consider a Gift instead. Again don't put that in the contract, just give a Gift (could be cash) at any point that you feel your nanny deserves a little something extra. An Xmas bonus Gift for example is often appreciated.

I would put a pay review annually rather than a pay rise because if you can't afford to increase her pay for any reason you don't have to

Brilliant advice. Thanks justaphase, nannynick, and madusa. I will phrase it as a pay review. I just didn't want the nanny to feel that, if she stayed with us, she would end up earning less, year on year, because of inflation, etc.

And a Gift sounds much more straightforward.

Thanks!

just a word of warning - calling a bonus a "gift" doesn't actually change the requirement as far as the tax man is concerned.

Really? Can't you give a present of money at Christmas (for instance)?

Thanks for the heads-up!

Clearly I need to research this better.

Penthesileia - I thought the same. Maybe gift allowance only applies with regard to inheritance tax. A nanny isn't likely to inherit from their employer!

MrsWobble - can you provide any further information? Links to HMRC info / articles etc much appreciated.

Any cash gifts are subject to tax and NI. You are allowed to give non cash gift up to a certain amount if you set up an arrangement with the tax office and you are allowed to spend so much per head on a Christmas Party (so you could take her out for a posh meal!)

Gifts to employees are a very complex area, with the majority of the relevant law being case law. The significant cases all predate a rewrite of the relevant statute law for income tax (ITEPA 2003) and an ongoing rewrite of the national insurance statutes, which may or may not be relevant.

HMRC will always take a very agressive position in an audit or investigation: you can get an idea of their internal views on part of this in this section from their manual.

But HMRC do not make law, they follow procedures based on their interpretation of the law, and it would not necessarily be dishonest to give a gift or even cash to a nanny at Christmas in the belief that such a gift was not earnings from employment and not therefore chargeable to tax or NI.

If HMRC were ever to find out about this (how?) and think it worthwhile (why?) to investigate and raise an assessment for underpaid PAYE, you would have to either pay some tax or take the case to a court that may agree with you, or may agree with HMRC. Either of you could then appeal the decision.

In the real world, this is not going to happen, and even if it did noone is going to go to jail over it. If you can with a clear conscience make some gifts or payments to your nanny which you reasonably believe are not 'earnings from employment', and you are prepared for HMRC to take a different view then that is up to you.

Please note the usual Mumsnet Discussions disclaimer, and in particular that what I have written here is not professional advice.

Sorry, that was a bit waffly - I'll be more specific.

The statement 'Any cash gifts are subject to tax and NI' is wrong. The truth is 'Any earnings from employment are subject to tax and NI and nearly all gifts (cash or otherwise) are earnings from employment)'.

But even HMRC admit (see here) that 'a personal and unexpected gift made from an employer to an employee, given as a gesture of goodwill, or as a token of gratitude' is not earnings from employment.

So if your Christmas bonus falls into that category, no tax or NI.

I share MrAnchovy's views - and that was what my earlier post referred to. basically, unless you are sure that you would have made the gift in the absence of the employment contract it's difficult to see how it's not connected.

if you do decide that it is still a gift then i suggest you think about paying it in cash rather than via bank transfer and make sure that it's not accompanied by any "thanks for all your hard work this year" type message - especially if you have a net pay contract with your nanny.

Not sure about Cambridgeshire; we are in London and a one week bonus (paid and taxable) is common. Again, it's not in the contract. I just let the nanny know there will be a reward for good performance. She seemed v pleased last year but will prob expect it this year. We review pay once a year too as others have said. I let her know I benchmark against her peers and double check with agencies as to what the going rates are. Last year this meant a basic inflation rise.

Interesting suggestion about "benchmarking", K75.

Thank you all (esp. Mr. A for his long response!). Very helpful.

As a nanny, feeling valued and appreciated is really important. An end of year bonues/pay rise is definitely a big incentive to stay with a family, but don't underestimate the impact of a bottle of wine to say thanks when you know she's had a tough week, or the odd morning off if you can to recognise particulary hard work.

agree a bonus is nice, but dont put in contract incase the nanny doesnt deserve it/leaves etc

though i do have payrise in my contract and not payreview - though techinally mb could give me 1p a week parise

but as limonchik said a word of thanks/bottle of wine/finishing 30mins early (if you are home) goes a long way

and being paid on time and be home at the agreed hour also is a must!!!

its a amazing how many employers think it is ok to ring from office at 5.55 and say they wont be home at 6pm and is it ok to stay late?

erm,no it isnt, i have plans, but i cant leave children home alone, so yes i HAVE to stay late

what you should do is grovel and ring at 5pm when you know you wont make your train etc

sorry, slight hijack [smile[

hiya, (newbie here!)

ive been working part time with the same family for a little over a year now, and the end of my first year contract i recieved 9% of my complete earning as a bonus (this is incredibly generous so possibely a week or two's wages as bonus)

being a nanny, its important to feel valued, the family i work for are fantastic and often buy me a little something (chocolates, a cute pen or bracelet) because ive been working really hard or just because they knew id like it.

this genuinly means alot to me, knowing that they appriciate little things i do.

being home on time is also a good way to let them know that you dont take them for granted...have worked for people who are often 1hr+ late home often with no warning, whereas in the year i have been there there have been 2 occasions where they have been late home (by late i mean 20 mins!!) both times they have let me know at least 1/2 hr in advance.

they have also given me the odd afternoon off if the previous week has been mad.

hth

sorry, also never underestimate the word "thank you"...i know it sounds obvious but if i've been looking after kids and tidying up etc then tidy the kitchen-by clean i mean wash dishes put away scrub sides etc...when the parent comes home and says "thank you for tidying up" or if its a busy week and kids have had friends over a text at the end of the week "thank you so much for this week!" really means alot...appriciating and noticing little things that your nanny does, is an incentive to stay! yes money is great but also knowing that your in a job where your appriciated is also just as rewarding...im not saying dont put a bonus or pay review in, but dont forghet the little things to!

sorry have completely rambled on!!!!!!!!

SORRY DOING IT AGAIN!!

my contract says "at end of first year contract, a bonus of 9% of your overall earnings will be paid if no disipliniry action has been taken"

something along those lines anyway dont have exact wording to hand!

so if you have a list of disiplinery (sp??) actiona e.g. verbal warning then written warning then dismissal or something then its clearly outlined when she will get bonus or if.

when i start my second year contract i will not get a bonus at the end of the year but i WILL get a pay increase, you could alternate it iygwim!

sorry promise this is the last post in a row on this thread!