When can a nanny be self employed - when they work for a temp agency?

I saw an advert on Mumsnet for a company called My Travelling Nanny which supplies temp nannies to families going on holiday.  This interested me as I wondered who would be the employer of the nanny in that situation... would it be the parents like it is when they hire a nanny directly, or would it be the agency, or perhaps would the nanny be a self employed contractor.   Hmm...

Looking at the website I found their terms and conditions (pdf) and took a closer look. In their terms they say:

The Nanny shall be an independent contractor, and the relationship of the Client and the Nanny shall in no event be construed to be that of principal and agent or employer and employee or master and servant, unless otherwise agreed in writing.

It also goes on to say about how payment is made... the parents pay the agency and the agency then pays the nanny a fee.

I thought about this and then looked at HMRC: CWG2 (pdf) the guide for Employers about PAYE and NICs.  On page 72 of that guide it says:

The agency is responsible for the payment of NICs where:•    the worker is expected to carry out work personally, and•    someone has the right, even if not exercised, to supervise, direct or control the way the work isdone and any of the following apply:–  the worker is paid by or through the agency–  the worker is paid based on accounts sent by the agency to the client–  the worker is paid by arrangements made with the agency–  there are payments other than worker’s pay (for example, fees or commission between the agency and the client).

So given the situation at hand, the parents are paying the agency and the agency are paying the nanny.  The nanny is expected to carry out the work personally, and someone (the parents most likely) have the right to supervise, direct or control the way the work is done, plus the nanny is paid by the agency, plus the worker is paid by arrangement made with the agency (as the agency seem to be deciding how much is paid).

So does that therefore mean that the nanny is not self employed but is instead an employee of the agency?

I contacted the agency to ask them.  Michaela replied promptly and seemed to be interested in my line of thought, that the nanny may be an employee of the agency, not self employed.   So we are not trying to find out what the situation actually is with regard to nannies being placed in a temp job by an agency, whereby the parents are paying the agency, rather than directly paying the nanny.

Keep following my blog for more on this subject as and when I am able to find out anything useful.

Currently I am now trying to read The Employment Status Manual published by HMRC, which is intended to provide guidance on issues relating to the employment status of individuals.  The area of particular interest is ESM2000 which deals with Agencies.

UK: How does taxation work when a nanny has two jobs?

When a nanny has two jobs, I feel the easiest way of doing taxation is for one job to be classed as the Primary job and the other job to be classed as secondary.

The primary job should be the one in which the nanny earns the most salary ideally, though it doesn't really matter as long as the salary is above the personal tax free allowance.

Employers of nannies should be agreeing Gross salaries, as is the situation in any other line of work.

An example of how it works for a nanny with two jobs:

Nanny working 10 hours per day, 3 days per week, being paid £10 gross per hour. No Student Loan Deductions, or any other special case such as being married or being a widow.
To help keep things simple: employees start date is 6 April 2009 and assuming that this is the nannies first job, so we have no tax to date to deal with.

Based on information in P49 for when no P45 is presented, persons only job, initial taxcode: 647L cumulative NICs Category A

Weekly Gross Pay: £300

Week 1
Earnings at the LEL (where earnings are equal to or exceed the LEL) £95
Earnings above the LE, up to and including the ET £15
Earnings above the ET, up to and including the UAP £190
Earnings above the UAP, up to and including the UEL £0
Total of employee's and employer's contributions £45.33
Employee's contributions due on all earnings above the ET £20.95
Employer's Contributions £24.38
Paydate: 10 April
The Col references below are for the PAYE form P11.
Col 2: 300, Col3: 300, Col 4a: 124.61, Col 5: 175.39, Col 6: 35, Col 7:35

Gross Pay £300
Employee NICs £20.95
Employee Tax £35

NET PAY £244.05

Employer's NICs £24.38

Total cost to the employer: £324.38 (Gross Pay + Employer's NICs)
Total payment to HMRC: £80.33


In Week 3 the nanny takes on another job. To keep the figures as similar as possible, will use 20 working hours at the higher pay rate of £15 per hour.
Thus in Job2 this nanny is working 20 hours at £15 per hour, thus earning £300 per week. BOX C on P46 has been ticked, so tax code is BR cumulative

Week 3 – Job2
Earnings at the LEL (where earnings are equal to or exceed the LEL) £95
Earnings above the LE, up to and including the ET £15
Earnings above the ET, up to and including the UAP £190
Earnings above the UAP, up to and including the UEL £0
Total of employee's and employer's contributions £45.33
Employee's contributions due on all earnings above the ET £20.95
Employer's Contributions £24.38
Paydate: 24 April
The Col references below are for the PAYE form P11.
Col 2: 300, Col3: 300, Col 6: 60, Col 7:60

Gross Pay £300
Employee NICs £20.95
Employee Tax £60

NET PAY £219.05

Employer's NICs £24.38

Total cost to the employer: £324.38 (Gross Pay + Employer's NICs)
Total payment to HMRC: £105.33

From this example you can see that the cost to the employer is the same £324.38
The amount paid to HMRC is different. The amount paid to the nanny is different.

In the example above, the second job is the same Gross Salary which makes it easier for us to be able to compare it with the primary job. In reality I would not expect the second job to be the same gross salary, though it is possible that it may happen.
In the second job, as the primary job is using all of the nannies tax free personal allowance, all of the income is taxed. This means that the amount deducted by the employer for the employees tax is higher. This is passed to HMRC by the employer, on the nannies behalf. As the gross pay amount is the same, the National Insurance Contributions are the same. As the gross pay amount is the same, each employer pays the same Employers National Insurance Contributions.

Employers of nannies SHOULD ALWAYS agree a Gross salary, not Net (take home pay). Agreeing a Net salary is very old fashioned in my view and will cause you as the employer grief in the long run, as your nannies taxcode can change during their time in your employment, plus tax rates can also change. As you can see from the example above, it does not matter if you are able to use any of the nannies personal tax allowance or not... the cost to you as the employer is the same regardless. The difference comes in the amount of tax you deduct from your nannies salary and pass on to HMRC.

This was prepared on 23 June 2009. Due to the way taxs work in the UK the figures in this calculation will be outdated at the next tax change (probably April 2010). However the principle remains the same.

How To Recruit A Nanny - Part 2: Nanny Agencies

Before the internet parents who wanted to employ a nanny would typically approach a Nanny Agency who would assist parents in selecting a suitable nanny.

The internet in my view has changed the way nannies are recruited. Nanny Agencies can charge from several hundred pounds to several thousand pounds. Whereas internet recruitment websites may charge less than thirty pounds.

However parents still do use nanny agencies, especially if it is the first time they are recruiting a nanny. Why? Well I suspect it is to do with having someone else provide all the necessary information and advice, plus it removes some of the hassles of finding a nanny.

A nanny agency will typically have a selection of nannies on their books who they know are looking for work. The agency will try to match the parents requirements with a suitable nanny. If none of the nannies on the agencies books meet the requirements, then the agency will advertise for nannies.

Before accepting a nanny onto the agencies books, the agency will interview the nanny and check references, training certificates, make sure the nanny has an Enhanced CRB (Criminal Record Bureau) check, plus will discuss with the nanny about what positions they feel they are suited to. For example, when I have been interviewed by nanny agencies, I like to make it clear that I prefer working with babies & toddlers. That then helps the agency in placing me with a family whom has a baby or toddler.

Agencies will check a nannies references but due to the Data Protection Act it appears that if a parent wanted a copy of the reference, the agency may not be in a position to provide that. For more information and a discussion about this see: Mumsnet: Nanny References

The agency will provide you with a short list of nannies whom you can then choose to interview. When you interview the nannies, I would suggest that you ask them to bring with them written references and provide a couple of phone numbers of families you can chat with. That way you can see their written references plus obtain verbal references for yourself. That combined with the feedback from the agency with regard to the references they checked should be sufficient to help you make the recruitment decision.

The agency is there to support you. They should be able to provide you with advice with regard to the nannies contract of employment, taxation rules (they may run their own payroll service, or will be able to provide details of one - such as PAYE for Nannies), plus provide general advice about employing a nanny.

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.