March 1999
THE MONEY MAZE - the new National Minimum Wage comes into effect on 1 April. Nannytax has unraveled the red tape to find out what the new legislation will mean for nannies
From 1 April 1999, the start of the new tax year, all employers in the UK must pay a National Minimum Wage (NMW) rate to their employees. This legislation is designed to combat the payment by some employers of substandard or exploitative wage rates and generally applies to all employees in the UK over the age of 18. But au pairs and those live-in nannies who ‘live as part of a family...and share in tasks and leisure activities on the same basis as other family members’, which could possibly be interpreted to mean those nannies who do not have entirely separate accommodation from the family they work for (i.e. who have a room in the family house and not a separate flat) have been excluded from the NMW legislation at the last minute.
However, the precise meaning of which live-in nannies are covered by this description, and thus excluded from the NMW legislation, may be open for debate. For employers of all other nannies it will be a criminal offence not to pay the NMW, carrying a fine on conviction of up to £5,000. You cannot agree to work for less than the NMW. Even if you sign a contract agreeing to receive a rate of pay lower than the NMW, it will have no legal standing and your employer will still be breaking the law.
The NMW payable is based on the gross hourly rate of pay of an employee. For daily (i.e. live-out) nannies aged between 18 and 21 this will be £3 per hour (gross) and for those aged 22 and over the NMW rate is £3.60 per hour (gross). However, for those live-in nannies who qualify for the NMW, employers can offset an allowance of 50p per hour from the gross wage rate (up to a maximum of 39 hours or £ 19.50 per week), or an allowance of £2.85 per day (or a maximum of £ 19.95 per week), whichever is less, for accommodation provided, bringing the effective NMW rate down to £2.50 per hour for nannies aged between 18 and 21 and £3.10 per hour for those aged 22 and over, for the first 39 hours worked a week. For every hour over 39 per week that you work, the full NMW rate for your age group will apply.
The Government originally intended each employer to show the current NMW rate on every payslip, next to the actual gross hourly rate being paid. However, they have now dropped this requirement as being too much of a paperwork burden on employers. This means that it is up to you, the employee, to make sure that you are being paid at or above the NMW rate, and to advise your employers if this is not the case. Your employers must give you access to your pay records within 14 days of your requesting this in writing, but if you think you are being paid below the NMW rate for your age group, checking your payslips, or asking your employer informally may be the best starting point.
The difficulty for nannies is that while the NMW rates are based on a gross hourly rate, most nannies’ pay is based on a net weekly or monthly rate. To arrive at your gross hourly rate you must divide you gross weekly pay by the number of hours you work in a week (or first multiply your gross monthly wage by 12 and divide by 52 to arrive at your gross weekly pay). But unless your employer is providing you with payslips that show both your gross weekly (or monthly) wage and a breakdown of the tax and NI deducted to arrive at your net weekly pay, you will not be able to do this. All employers in the UK must by law provide regular payslips to their employees but not all parents provide these for their nannies. If your employer is not currently giving you a regular payslip, the introduction of the NMW is certainly a timely moment to ask them to do so.
Another (related) issue that surfaces at this time of the year is that nannies who are employed on an agreed net wage will not automatically benefit from any cuts in income tax, including the new 10 per cent tax band, announced by Gordon Brown in the Budget on 9 March. Employers of nannies often (wrongly) consider that the tax and NI they pay on a nanny's behalf is an additional cost and thus may keep any reductions in these for themselves. And if you have agreed a net wage, they cannot be compelled to pass these on to you. This is yet another instance in which the practice of agreeing wages on a net basis, which remains the norm in the nanny profession, works to the disadvantage of nannies who agree to it. Even if you agree a net wage when starting work, it is wise to have this stated as its gross equivalent in your contract so that you can benefit from any cuts in tax and NI Contributions.
While most nannies are already being paid above the new NMW rates, the results of our annual wages survey made it clear that this is certainly not the case for all nannies. If you are paid well above the NMW rate you may feel that this new legislation is of little interest to you. But rates of pay for more experienced or qualified nannies are partly based upon the difference between them and new or unqualified nannies, some of whom may have been paid below the new NMW rates up to now. If these latter employees see their basic rates of pay increase as a result of the NMW, it may well have a knock-on effect through all levels of nannies' pay. So the NMW should turn out to be excellent news for all nannies in the long run, even though this may be of little immediate comfort to those live-in nannies who have apparently been excluded from the legislation and are currently being paid below the NMW rate.