The call came the other day. The family you loved interviewing with and playing with their children has asked you to be their nanny. The pay is what you wanted. But wait, are they planning to pay you professionally so you can count on benefits and protections, such as unemployment, state pension, holiday pay etc.?
No matter how much you love the children, you don’t want to get involved in tax evasion. Here are some points you will want to mention to employers to convince them to pay legally:
1. Build Your Future
Your national insurance contributions entitle you to certain state benefits during your working life and beyond. These include:
- Protection against unfair dismissal
- Statutory Sick Pay, Statutory Maternity Pay
- Statutory Adoption Pay
- Statutory Paternity Pay
- Redundancy Pay
- Holiday Pay
- State Pension Contributions
If your employer does not register for PAYE or if they register but fail to declare your entire salary in order to save themselves money, this is not only illegal, but will directly affect your full entitlement to the above and other state benefits. NannyTax offers information on the current rates and thresholds to help you learn more.
2. National Insurance Contributions
Nanny Shares are increasingly common and we strongly recommend that both families formally register as employers, saving everybody involved money. Employers will save approximately £14.50 each per week (£750 per year) in National Insurance contributions. As the employee, you will also benefit by having to pay less National Insurance and should you become ill, you would receive twice the normal amount in Statutory Sick Pay. You can use the Nanny Tax Calculator to find out how much it will cost the family.
3. Nannies – Employed or Self-employed?
Whether somebody is employed or self-employed depends on the terms and conditions of their work. The employee and employer need to be absolutely certain which bracket they/their nanny fall under.
A worker is usually considered employed by HMRC if they:
- have to do the work themselves
- can be told at any time what to do, where to carry out the work or when and how to do it
- work a set amount of hours
- can be moved from task to task
- are paid by the hour, week or month
- can be paid overtime or receive bonus payments
A worker is generally considered self-employed by HMRC if they:
- can hire someone else to do their work or engage helpers at their own expense
- risk their own money
- provide the main items of equipment needed to do their job, not just the small tools that many employees provide for themselves
- agree to do a job for a fixed price regardless of how long the job may take
- can decide what work to do, how and when to do the work and where to provide the services
- regularly work for a number of people
- have to correct unsatisfactory work in their own time and at their own expense
As you can see, whilst there are exceptions to the rule, the vast proportion of nannies will fit within the employed category. It is the responsibility of the parents (the employer) to register for HMRC, operate a PAYE scheme and pay tax and NI contributions on her behalf. If you would like more information, NannyTax provides a list on how to determine employment status.
REMINDER: Failure to declare an employee to avoid paying tax is a criminal offence which can result in heavy penalties.
4. Other Benefits of Agreeing a Gross Wage
Nannying is probably the only profession left in the UK where wages are still commonly agreed on the basis of net pay (i.e. take-home pay) which is disadvantageous to all nannies because:
- The Government regularly increases the personal tax-free allowances and has cut the basic rate of income tax several times in recent years. If you have a net pay deal your employer does not have to pass any of the savings on to you. Only if you are on a gross wage will you automatically receive the benefit of any cuts by paying less tax and NI.
- A gross wage enables you to compare your salary with any other type of employee in the UK, thereby giving you an opportunity to assess your earning power and consider your career options.
- A gross wage agreement is also essential if you want a to get a personal loan or a mortgage, as the figure the bank or building society will be interested in is your gross salary. Similarly, if you want to make sure you are being paid the National Minimum Wage, you need to know what your gross salary is.
However, it can also be disadvantageous for the employer. Benefits in kind such as a car, accommodation, health club membership and travel are all taxable benefits. In almost all other types of employment the employee is always responsible for paying the tax on these additional benefits. This is not true for a nanny who is on net pay arrangements. Net pay arrangements will mean that the employer is responsible for paying this tax, which can potentially be an extremely expensive experience. Visit NannyTax for more info.
