Paying a Nanny - How do I go about paying a nanny?

It is important that you agree to pay your nanny a Gross salary, either as a monthly or yearly amount. A Gross salary means the amount before deductions for Income Tax and National Insurance Contributions (NICs).

Never agree a NET (take home pay) salary with your nanny. It can be very tricky to work out what your nannies real pay is if you agree a NET salary.

In the UK, you deduct Income Tax and NICs from your employees gross monthly pay and send that once every quarter (every 3 months) to HMRC. In addition as the employer you also pay Employers NICs.

There is a great website called ListenToTaxman.com which can help you get an idea of how much it will cost you to employ a nanny. The figures produced by ListenToTaxman.com are accurate but you should never use these figures for filling out PAYE forms. Please use the figures as a guide.

So what you may be wondering is PAYE. Well it is Pay As You Earn. It is the method of tax deduction that is used for all UK employees, as far as I am aware. You can find out further information about PAYE on the HMRC Website: PAYE Intro.

As an employer of a nanny you need to register with HMRC as an employer. They will then send you out a pack with most of the forms you will initially need, plus a CD-ROM (for Windows based PC's) which contains lots of other forms and help in electronic form. The CD-ROM also helps you file online PAYE returns.

If your nanny has come from a previous job, ask them for their P45. If they don't have that for some reason, they need to complete a P46 (which is on the CD-ROM or can be obtained from the HMRC Employers Helpline).

You will then follow procedures in P49 Paying Someone for the First Time. This will set the ball rolling as it were. P49 talks you through doing the first months payroll.

If doing all the payroll gets a bit complicated, or you would prefer someone else to produce payslips for you, then there are various nanny payroll companies who can help you. As a nanny I have found that PAYEforNannies is good.