When you become a nanny employer, you also become responsible for paying your nanny their salary and being compliant with HMRC. The two come hand-in-hand, and there are several steps to ensuring you comply with your legal obligations as a nanny employer.
Step 1 – Agreeing a salary
The first step is to agree a salary. You can use the Nannytax Nanny Salary Index to find the latest average nanny salaries in your area. It’s important to keep in mind that location is not the only factor in determining a nanny’s salary. As with any industry, a nanny’s salary can fluctuate depending on their qualifications, skills, and experience.
We advise agreeing a Gross salary with your nanny as this will allow you to budget more effectively, but do keep in mind that your employee’s salary will not be your only expense. Employer’s National Insurance Contributions, Employer’s pension contributions, and Employer’s liability insurance are all part of your Total Cost.
Step 2 – Signing the contract
You must provide your nanny with a contract of employment on or before their first day of work. The contract should help you and your nanny set the foundations of a positive working relationship and will outline the key terms of the employment arrangement which you both can refer to and must keep to.
Step 3 – Registering as an employer and setting up a Nanny PAYE Scheme
If you plan to pay your nanny £120 or more a week, you are legally required to register as an employer with HMRC and set up a Nanny PAYE scheme. This will enable you to declare tax and National insurance contributions each time you pay your nanny.
If you are paying your nanny less than £120 gross per week, but your nanny has more than one job, it is advised that you register with HMRC as an employer because your nanny will be earning above the Lower Earnings Limit across their multiple employments.
Please note, you need to register as an employer with HMRC before your nanny’s first pay day.
Step 4 – Workplace pension
As a nanny employer, you must assess your nanny’s eligibility for a workplace pension and enrol your nanny into a workplace pension scheme if they are eligible. Once enrolled into the pension scheme, both you and your nanny will contribute to your nanny’s pension pot.
If your nanny does not want to be enrolled into a pension scheme, it remains a legal requirement to enrol them into one initially, and they can later choose to ‘opt out.’
Step 5 – Calculating and deducting taxes
You will need to calculate and deduct income tax and National Insurance contributions from your nanny’s Gross salary each time you pay them, the exact amount will depend on your nanny’s earnings and tax code.
Step 6 – Paying your nanny
When you pay your nanny, you are required to provide them with weekly or monthly payslips that detail their salary, tax & National Insurance deductions, pension contributions, and any other necessary information, such as Student Loan.
You will also be required to submit a Full Payment Submission (FPS) to HMRC, providing details of your nanny’s earnings, deductions, and taxes. This needs to be submitted to HMRC on or before your nanny’s payday, even if you pay HMRC quarterly instead of monthly.
Step 7 – Paying your liabilities
You are responsible for paying your nanny’s tax, National insurance, and your Employer’s National Insurance contributions each quarter to HMRC, this is known as your liabilities.
Your liability payment must be made between the 5th and 22nd in the month following the quarter. For example, the first quarter is April, May, and June. Therefore, you will need to pay your liabilities to HMRC between the 5th and 22nd July.
If your HMRC liability exceeds £4,500 per quarter, you will be expected to make monthly payments to HMRC.
Step 8 – End of tax year duties
When the tax year comes to an end (5th April), you must give your nanny a P60 form, which outlines their total earnings and the taxes paid during the year.
Who are Nannytax and how can they help?
Nannytax are the UK market leader in nanny payroll and have been supporting families and empowering nannies for 30 years. They offer an end-to-end nanny payroll & HR service, from your initial PAYE Scheme set up to producing the final P45 when your nanny leaves, making employing a nanny easy.
Discover more about Nannytax here.
