Employment contract
You must provide your nanny with an employment contract or a statement of the terms and conditions of her employment within two months of her starting date. We recommend that you have a contract/written statement of employment drawn up & ready to sign before the nanny starts work as it gives both sides a chance to discuss it and clarify any points in advance.
We have REC approved sample contracts we can send or email to you.
Employers must advise employees of any changes in their employment (e.g. salary, hours worked etc.) at the first convenient opportunity and at least one month in advance of any changes due to take place.
A contract will put your relationship with the nanny on a professional footing and it does make both parties think through what the whole business means.
Tax and NI
We recommend that you should always agree a gross wage with your nanny. Parents often agree a net (i.e. take-home) wage with their nannies, but in reality a nanny is always paid a gross salary, with tax and National Insurance Contributions deducted and paid to HMRC on a quarterly basis by the employer on behalf of the nanny. Although many employers tend to look on this as an additional cost, it is actually part of the nanny's gross wage. On top of the gross wage, employers also have to pay an Employer's National Insurance Contribution for each employee.
· Nannying is probably the only profession left in the UK where wages are still commonly agreed on the basis of net (i.e. take-home) pay. It is surprising that this outdated arrangement has not yet been dispensed with, as there are considerable financial implications at stake for both nanny and employer. By agreeing a net pay you are essentially writing a blank cheque - committing to pay all nanny's tax and National Insurance contributions, irrespective of any changes in the legislation and without taking into account her individual tax code or tax position.
· There are several reasons why a nanny's tax code can vary from a standard tax code; for instance, if she has two part-time jobs and her other employer is already using up her personal tax-free allowance in their wage calculations, then you, the second employer, must pay tax from the first penny the nanny earns, since the personal tax-free allowance can only be claimed once. Another reason for an unusual tax code would be if HMRC were collecting unpaid or underpaid tax from previous employment.
· An increasing number of state benefits and tax reliefs are paid through the payroll mechanism as an offset to employee tax and NI liability. Any taxable benefit provided by the employer, such as the personal use of a car, will increase costs if they are based on a fixed net wage.
· An the difference between a net pay and the actual cost of employing a nanny can be staggering (up to 50% more) and may come as an unpleasant surprise, especially to an inexperienced first-time employer.
A net pay arrangement is equally unfavourable to your nanny.
If you employ a nanny in the UK and you pay her more than £105 per week (tax year 2008/2009) you have the same legal responsibilities as a commercial employer and the law requires you to:
- Register as an employer
- Set up and operate a PAYE (Pay As You Earn) scheme on your nanny's behalf
- Keep tax records on her behalf
- Provide your nanny with regular payslips
- Provide her with an employment contract
- Pay regular income tax and National Insurance Contributions
- Pay employer's National Insurance Contributions
- File an employer's annual tax return
These obligations also apply:
- If your nanny earns less than £90 per week in your employment but more than £105 in total (e.g. if she has two part-time jobs)
- In short-term employment (i.e. a week or longer) To any employment taking place in the UK - irrespective of the country of origin of the nanny or employer
All this can be done through the Inland Revenue’s PAYE (Pay As You Earn) scheme or there are several companies that will handle all this for you – such as Nannytax . If you are paying your nanny less than the lower earnings limit you will not need to make payments on her behalf, but she can still pay voluntary National Insurance Contributions. Always make it absolutely clear that you are talking GROSS pay when you offer a salary to a nanny (GROSS means before Tax & NIC’s have been deducted, NET means after they have been deducted) as nannies traditionally tend to talk in NET Pay Terms.
It is important to the nanny that the contributions are being paid – if they are not she loses entitlements to a range of Social Service benefits e.g. unemployment pay, state pension rights, maternity allowance etc.
What if my nanny wants cash in hand?
Self employment is not an option for a nanny employed by you (with the exception of maternity nurses), as nannies do not meet the Inland Revenue criteria for self-employment. If liability to pay tax is not declared to the Inland Revenue, and then come to light, then it is you, the employer, and not your nanny, who will be pursued for payment.
Nanny sharing - Points to consider when sharing a nanny
In the case of a nanny share the advice below may help on how best to arrange this - but you should contact either the Tax Office or NannyTax for more information.
If two families employ a nanny to look after all their children - i.e. a nanny share - it is advisable for each family to set up their own separate PAYE scheme as this will result in a considerable saving in National Insurance Contributions (NICs) for each party - without adversely affecting the nanny. Usually, the first (or main) employer applies the nanny's full personal tax-free allowance (currently £105 per week for a single person on a standard tax code). The second employer then applies the basic rate of income tax (currently 20% of gross income) to all earnings in their employment. But many domestic employers agree a net salary with their nanny. This means that if a first (or main) employer is using all of their nanny's personal tax free allowance, the second employer, paying an agreed net, will end up paying substantially more tax, having to pay basic rate tax (at 20%) from the first penny nanny earns. Therefore all employers are advised to agree their nanny's pay on a gross basis. 
Even if a nanny takes home proportionally more from her first employer than her second, she should be made aware that she is being taxed correctly, if unequally, over both sources of income. Neither employer is out of pocket when paying an agreed gross wage. Agreeing a net wage is highly inadvisable as it makes an employer liable to potentially unlimited amounts of top-up tax and NI whenever the rates for these are increased, and severely disadvantages a second employer when the first employer is already applying a nanny's full tax code. Even when a fixed net wage has been agreed it is better for one employer to use their nanny's entire tax code and to privately agree an adjustment in total cost between the first and second employer, to ensure that neither is unfairly out of pocket, when paying the share of both tax and NI, rather than to apply to the tax office to split her tax code. It is possible for two employers to split their nanny's tax code between them so that each family has the benefit of part of nanny's personal tax-free allowance. It is important that both employer's ensure that once the tax code split has been applied they are each paying the NMW or above.
Holiday entitlement/Statutory Holiday Pay
Up until recently all employees in the UK were entitled by law to 4 weeks paid leave every year. New holiday legislation has now been introduced and as of 1st October 2007 you are required to give at least 4 bank holidays as paid leave in addition to the 4 weeks. That means that all employees will now be entitled to 4.8 weeks holiday per year. This entitlement begins from the very first day of employment but cannot be taken until it has been accrued (e.g. one day’s holiday after thirteen days work). The holiday entitlement will be on a pro-rata equivalent.
If your nanny works on a part-time basis and you want to know how many days she is entitled to, simply multiply the number of days she works each week with 4.8. The total should be rounded up to the nearest 1/2 day. In April 2009 legislation will change again and all 8 bank holidays need to be given as paid leave bringing the total holiday entitlement up to 5.6 weeks. Please note that the bank holidays do not need to be taken on the actual bank holiday, and it is up to you as the employer to choose when holiday should be taken. Employers whose nannies do not accompany them on holidays may like to agree with their nannies, when employment starts, that at least part of their entitlement is to be taken when they themselves are on holiday.
Redundancy Pay
There is a lot of confusion in nannying on the issue of redundancy. Many nannies and employers assume that because of the unique circumstances that exist between a nanny and her employer, she doesn't qualify for redundancy pay. But if you no longer have a job for your nanny and she has been employed by you for two years or more she is entitled to redundancy pay just like any other employee.
Similarly, if your circumstances change and you no longer have a full-time job for her, perhaps due to the children attending school full-time or one parent working part-time, and you want to employ your nanny on a part-time basis, you are required to first offer the 'new' position to the existing nanny. If she chooses not to continue working under the new conditions you are still required to pay her redundancy pay, unless she is on a fixed term contract.
Statutory Sick Pay
If your nanny is unable to work through sickness, then she is entitled to Statutory Sick Pay (SSP) after the first three (working) days of absence. The first three days of absence are usually paid at her standard rate of pay, but this entirely at the employer's discretion. SSP is paid as either part of or instead of the normal wage. Your employee should provide a doctor's certificate or self-certify, explaining the reason for her absence. You can claim part of any SSP pay back from the Revenue.
Statutory Maternity Pay
If your nanny becomes pregnant and is in your employment at a specific qualifying date, then you, as employer, are required by law to pay Statutory Maternity Pay (SMP), even is she subsequently leaves your employment before her period of maternity leave commences. However, you will not be out of pocket as you can reclaim virtually all SMP paid from the Contributions Agency. Nannytax can give further details and advice on SMP and also advise on Statutory Paternity Pay and Statutory Adoption Pay.
Statutory Notice Periods
There are minimum notice periods set by law. We do find that normally longer notice periods are agreed by both sides (usually minimum 4 weeks) in a contract. Unless the contract says otherwise, notice can be given verbally or in writing, although it is advisable to at least confirm it in writing. If you do not wish the nanny to work her notice period you should pay in lieu.
Whatever the contract says, you must give your employee at least the statutory minimum period of notice, which depends on how long they’ve worked for you:
- one week if they’ve been continuously employed for between one month and two years
- one week for each complete year (up to a maximum of 12) if they’ve been continuously employed for two or more years
So, for example, a nanny who has done six and a half years service, will be entitled to six weeks notice.
Stakeholder Pensions
At present employers with less than five employees are not required to make stakeholder pensions available to their employees.
Taxable Benefits
If you provide your nanny with a car for her private use, or any other benefits in kind, both you and she may be liable to pay some additional tax and NICs on these items. If you have agreed a fixed net wage with her then you should be aware that any additional liability would fall entirely on you, the employer.
Insurance
As a domestic employer you need to make sure that your household insurance policy includes an employer's liability insurance to protect you if your nanny has an accident during working hours. Employer's liability insurance is often included as standard in most policies, but check your policy documents and if in doubt contact your insurance provider. If you are employing a live in nanny find out if her possessions are covered under your insurance.
Nannies can also take out Public Liability insurance to protect themselves, contact nannyinsure www.nannyinsure.co.uk or Morton Michel www.mortonmichel.com for more information. In order to become registered under the new Ofsted Childcare Register (OCR) Nannies are required to have Public Liability Insurance.
Car Insurance
If the nanny is driving the children around in her own car make sure that it is covered for business use and if they are driving your car, check that they are included on your policy.
Once your nanny starts work
Good communication between you and your nanny is essential. Talk about any small problems as they arise as these can often build up out of all proportion. It is a good idea to set aside a time when you can discuss things – it gives you the chance to catch up with what your child has been doing & gives you both the opportunity to review how things are going.
The best nanny/employer relationships are the ones based on trust with a good deal of give and take and a solid professional base. As an employer you obviously have the right to say how you want things done. The nature of the job means that a nanny does have to listen & go along with your wishes but there should always be compromise from both sides. Whatever happens make sure that you are both consistent about things to do with the child. From your point of view it’s helpful if the nanny is prepared to be a bit flexible without jeopardising her role.
The following points may be a useful summary of what you should expect from your nanny & what she will expect from you.
What you should expect: 
- The Nanny to respond to children’s individual needs
- A resourceful approach to working with children
- Planned activities
- Regular feedback about the children
- Your nanny to tell you if there is a problem
- Respect and confidentiality for you as a family
You should provide:
- Good working conditions
- A well thought out job description
- Support to your new Nanny
- Clear details of hours and duties
- Be considerate about being home on time
- Written contract of employment. This must be issued within 3 months of the nanny starting work – see link
- Insurance – most household policies cover employer’s liability for domestic staff, but we recommend you check yours.
- Some nannies will also have their own insurance, usually through a company called Morton Michel www.mortonmichel.com
- If the nanny is using their own car check that they have adequate insurance.
- Contact number for you, your partner and a relative or family friend.
- Contact numbers for schools, nursery or playgroups.
- Details of the family doctor and dentist.
- Written permission, if appropriate, to administer medicine and seek medical advice.
- Information on your child’s health, discipline, special routines, favourite toys and games.
- Information about local activities, parks, swimming classes, nanny clubs and drop in clubs.
Listen to your children:
Inevitably there will be ups and downs, but listen to your children so they can let you know how they feel about their nanny. With babies and younger children pay attention to how they are feeling and be aware of any behavioural changes. Your children need to know that you will listen to them and take action if necessary.
Listen to your Nanny:
Plan time at least once a week so your nanny can tell you how things are going.
We hope you find this guide helpful. If there is anything you don’t understand or if you need further information please call us.
