October 2000
Do the paperwork
The most well-meaning employer may be unaware of their obligations to their nanny
Whether you are starting your first nannying job or are an experienced nanny, the correct handling of your pay and tax arrangements should be an important issue for you. Not only does it matter that you receive the correct agreed pay from your employer at the right time (not just when they get round to paying you), but it also matters that income tax and National Insurance contributions that are deducted from your wage on your behalf are correctly calculated and paid to the Inland Revenue.
LEGAL OBLIGATION
Your employer is required by law to provide you with regular payslips which show these deductions, as well as a contract of employment which outlines all the terms and conditions including your salary, hours to be worked, your holiday pay, sick pay entitlement and so on. Your employer should provide you with such a contract within 12 weeks of starting work for them. As nannies do not meet the Inland Revenue criteria for self-employment, an employer cannot ask you to sort out your own tax. It is entirely their responsibility to do so.
NET VERSUS GROSS PAY
I will deal with the consequences of agreeing pay solely on the basis of a net wage in a later article. Even if you agree a net wage, your contract of employment should state the current gross equivalent (that is, with income tax and employee's National Insurance contribution) of the net wage agreed. This means you will automatically get the benefit of any future tax cuts brought in by the Government and your employer will be protected from having to pay extra tax in circumstances such as your having two part-time jobs or your being tax-coded to recoup any unpaid tax from previous employment.
THE TRUE COST
Your employer also has to pay an additional Employer's NI Contribution which is not part of your gross wage. So there is a large difference between your take-home pay and the total cost to your employer of employing you, and it is important for both parties to be aware of this from the outset to avoid it becoming a contentious issue between you. Remember that your employer is usually paying you out of their own, already taxed income. But this certainly does not mean you should be paid less than you are worth.
HOW DO THEY SORT OUT TAX?
When they take you on an employer should contact their local tax office to register as an employer. They will be sent an information pack and given a unique reference number for their new PAYE (Pay As You Earn) scheme. If they have employed a nanny before they will use the same scheme as they used before. If they are using a payroll service, a PAYE scheme will be set up for them as part of this service. You are entitled to be given their scheme reference number and any information about your pay records you require. You will need this information if, for example, you take out a mortgage or a personal loan, or indeed if you want to check up whether they are paying your tax and NI to the Revenue on a regular basis.
Once the PAYE scheme is set up, tax and NI payments are made to the Inland Revenue every three months, and some employers might prefer to set up a separate bank or building society account for this.
WHAT'S IT ALL FOR?
Income tax is levied by the government on all employment that takes place in the UK. This is part of the money that is spent on the NHS, education system, social services and so on. Nobody likes paying taxes, but our present-day society could not function without them, so looked at positively this is your personal contribution to society.
At least in the PAYE tax system you pay your share of tax painlessly as you earn. Your National Insurance contribution goes towards your entitlement to various state benefits such as your Old Age Pension and unemployment benefit. These are the safety nets that are designed to protect everyone in society, whatever their circumstances.
YOUR NI NUMBER
To work in the UK you need a National Insurance number. Without an NI number –which you should give to your employer when you start work – NI contributions cannot be posted to your Social Security account. If you are a UK citizen you will be given an NI number at birth. If you do not know what this is, ring your local tax office where they will have it on a computer system. If you are a nanny from outside the UK you can obtain an NI number by visiting your local Contributions Agency office with your passport and work permit. Be prepared to wait for up to several hours!
THE NMW AND HOLIDAY PAY
You should be paid at least the National Minimum Wage (NMW) – currently £3.20 per hour for those aged 18 to 21 and £3.70 per hour for those aged 22 and over. Live-in nannies who live as part of the family household (and not in separately metered accommodation) are excluded from the NMW as it is considered that their employer is providing free accommodation, heat, light and meals and so on. A small allowance – up to £19.50 per week – can be deducted from the NMW by employers who provide separate accommodation for a nanny. All UK employees, without exception, are entitled to four weeks paid holiday a year (which can include bank holidays). If you work part-time this entitlement is pro-rata the number of days worked in a job (e.g., 12 days holiday for a three days a week job).
SICKNESS OR PREGNANCY
If you fall ill your employer is obliged to pay you statutory sick pay (SSP) after three working days absence, either as part of or instead of your normal pay. Part of this SSP can be reclaimed by your employer from the Contributions Agency. If you become pregnant your employer (or the employer you were with at a specific qualifying date) is required to administer and pay you statutory maternity pay (SMP) during maternity leave. SMP can be reclaimed in full from the state. The details of SSP and SMP can be quite complex, so further advice and information should be sought at the appropriate time.
GETTING IT RIGHT
Many employers are well-intentioned but short of time. Some may put off sorting out your pay arrangements. However, they should be aware that it is not only important for them to retain your confidence by handling your pay arrangements properly, but also that they face possible penalties and interest payments for late filing of their annual employer’s return or late-paying their tax/NI liability. If you have worked as a nanny before you may be better informed than they are as a new employer, and may be able to advise them or at least point them in the right direction. It is in the interests of both you and your employer that all arrangements are properly taken care of.
Getting your pay arrangements right is a good starting point for your ongoing relationship with your employer. You are looking after their children, and as your employer they should be looking after you! You should not feel embarrassed about raising this important issue if, for example, you find that they are not paying you on time or have been putting off keeping proper records on your behalf.