Self Employment
Nannies Employment Status: Employed versus Self Employed
- An employee is hired under a “contract of service” (better known as an employment contract).
- A self-employed person agrees a “contract for services” with you – he/she is in business via his own account, with the risks and rewards that implies.
Being Employed
Being employed means having a defined job description and role and you are being paid by the hour, week or month. You may also be paid overtime and may receive bonuses. As advised by HMRC, nannies, housekeepers, and other domestic staff cannot generally be classed as self-employed. HMRC advises that an employee can be self employed if most of the following are true;
- they’re in business for themselves, are responsible for the success or failure of their business and can make a loss or a profit
- they can decide what work they do and when, where or how to do it
- they can hire someone else to do the work
- they’re responsible for fixing any unsatisfactory work in their own time
- their employer agrees a fixed price for their work – it does not depend on how long the job takes to finish
- they use their own money to buy business assets, cover running costs, and provide tools and equipment for their work
- they can work for more than one client.
**Please note that this list may not be exhaustive.
Nanny Self-Employment
Being self-employed is agreeing to do a fixed job at a fixed price regardless of the hours. Self employed individuals often work for a number of clients at the same time and can decide how, when and where to do their job. This is not the case for the majority of domestic staff. As advised by HMRC an individual is probably self-employed and exempt from PAYE if most of the following are true:
- they put in bids or give quotes to get work
- they’re not under direct supervision when working
- they submit invoices for the work they’ve done
- they’re responsible for paying their own National Insurance and tax
- they do not get holiday or sick pay when they’re not working
- they operate under a contract (sometimes known as a ‘contract for services’ or ‘consultancy agreement’) that uses terms like ‘self-employed’, ‘consultant’ or an ‘independent contractor.’
**Please note that these lists may not be exhaustive.
These definitions indicate that a nanny cannot be self-employed as their role fits either the worker or employee profile. However, there can be exceptions. These exceptions tend to apply to maternity nurses and childminders mainly. According to HMRC, a nanny must be working in several temporary positions or working for more than three families for a nanny to be self-employed. Every situation is different, and HMRC will look at each case individually.
The risks of hiring a self-employed Nanny
The risks of hiring a self-employed Nanny are that if there is a discrepancy in the taxes, the family will often be liable, and there is also a risk of significant penalties from HMRC.
Check Employment Status for Tax tool
If your Nanny, Housekeeper or another member of staff wants to be self-employed, it is always wise to use the Check Employment Status for Tax tool on the HMRC website. This will provide you with an indication as to whether you can use employed or self-employed status.
Individuals and their employers may have to pay unpaid tax and penalties or lose entitlement to benefits if their employment status is wrong.
For nannies with a history of self-employment, there are things to be aware of as potential employers. First, the employer has to request written confirmation from HMRC of the nanny’s self-employed status. The employer is liable for unpaid tax if it is later concluded that the nanny is not self-employed after all. Also, please note that if a nanny has previously been self-employed, that does not mean they will be self-employed in another position.
Please speak to a member of the Little Ones Payroll Service team who will help navigate this topic. Unfortunately, Little Ones will not be able to determine whether an employee is eligible for self-employment status. Still, we can explain the process and assist with HMRC if you are signed up to the Little Ones Payroll Service.
Becoming an employer brings with it legal responsibilities. These include;
Deducting the correct tax from your nanny’s salary – Employers must pay income tax and employee’s national insurance, as well as employer’s national insurance. These will all be managed by the Little Ones Payroll team, who will report the appropriate figures to be settled with the employee (Salary) and HMRC (taxes).
Providing an Employment Contract – Employers should provide the nannies and housekeepers with a relevant contract of employment. You are not legally obliged to provide an employment contract. Still, it is beneficial to cement economics (which may affect tax), and it also helps resolve any issues as you can simply refer to the contract. This is to protect the rights of both parties. The Little Ones Payroll team can provide you with a template contract of employment to use as the basis for your agreement.
Providing a regular payslip – Nannies should be provided with a payslip each week or month, reflecting earnings and any deductions for tax and pensions.
Meeting your Employer Pension duties – All eligible jobholders will be required to be auto-enrolled into a pension scheme.
Paid Annual Leave – Every nanny is entitled to 5.6 weeks paid annual leave per annum – this is the equivalent of 28 days including annual leave or 20 days, not including bank holidays. If your employee works less than 5 days per week, the holiday allowance will be prorated.
Sick Leave – If a nanny earns over £120 per week, they are entitled to statutory sick pay and time off work if they feel unwell.
Maternity Pay and Maternity Leave – Nannies may also be eligible to receive statutory maternity leave and maternity pay.
Little Ones Payroll Service is a market leader in childcare and nanny payroll services providing professional support for families. We employ a dedicated, expert team of Consultants and Payroll Administrators to help you navigate your nannies administrative payroll requirements. The dedicated payroll service team is based in the UK and is on call to provide clients with a professional, friendly and all-inclusive nanny payroll service.
The Little Ones Nanny Payroll offering manages all critical aspects of employee payroll provision for employees, from HMRC registration to bespoke employment contract provision. The Little Ones in-house nanny payroll service aims to take away the administrative burden of hiring an employee and help you to meet all of your employer tax and reporting obligations.
This means that Little Ones Payroll will be in charge of generating the payslips and the entire payroll services. This includes:
- Registering you as an employer
- Setting up a PAYE scheme
- Generating weekly or monthly payslip
- Tracking your nanny’s Insurance contribution and Income Tax and providing instructions on how to pay these
- Assisting with filing your annual tax return
- Handling the complete record of payroll
- Access to our HR services
- Support in any work-related queries, including maternity and sickness
This list is not exhaustive; therefore, The Little Ones Payroll team is an expert team of Consultants and Payroll Administrators who are here to help you on your payroll journey with an existing or new nanny. Please do not hesitate to contact us on 0207 183 6795 or email us at payroll@littleones.co.uk.
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