Faced with the possibility of organising and paying tax and national insurance contributions on a nanny’s net salary, one question that we are often asked by parents, is, can a nanny be self-employed? Nannies in turn often state that they are self-employed thereby making themselves more attractive to parents who do not want the perceived hassle and cost of registering themselves as employers. So can self-employment and nannies really work?
Whether your nanny is self-employed or not will depend on his/ her employment status. There are various tests which the courts will use to decide whether a nanny is “employed” or not. These include:
- Personal Service: Does the work need to be carried out in person or can someone else do it?
- Control Test: What is the degree of control exercised by the “employer”?
- Mutuality of obligation: Is there an obligation on the employer to provide work and an obligation on the individual to accept that work?
- Economic reality test: Is the individual providing services for their own account?
To help answer these questions, you are usually self-employed if you can answer “yes” to the following:
- Do you have the final say in how you work? The hours that you work and where you work?
- Are you responsible for your own expenses such as food and petrol?
- Can you get someone to replace you if you are ill or unable to work?
- Do you agree to do a job for a fixed price regardless of how long it may take or are you paid by the hour?
- Can you decide what work to do, how and when to work and where to provide the services?
- Do you regularly work for a number of different people?
An HMRC Status Officer will look at the whole picture of your work. A nanny would need to be working for various different people, at non-regular times/days; the more regular the hours, the less likely he /she will be self-employed. The general rule is that nannies who work for one family are not self-employed and that even when working for two families it would be rare for a nanny to be self-employed. If the nanny did a mixture of work for many families such as some maternity nursing, and some short term temping… then perhaps they could be self-employed but they would have to convince HMRC that this was genuinely the case.
Burden of Payment
If a nanny is deemed to be employed, the burden of paying tax and national insurance contributions falls on the parent as the nanny’s employer. Failure to pay can lead to heavy financial penalties. HMRC has said that if it thinks parents have been deliberately evading tax then they not only will have to pay the tax due, but could also face a fine equivalent to 100% of the tax due – effectively doubling the amount paid. If parents have been part-paying tax and adding a cash sum on top, this is likely to indicate that they were aware of the rules, and HMRC is unlikely to be lenient. Similarly it has said individuals who officials believe are aware of the rules – such as accountants and barristers – will face criminal prosecution.
Benefits of Employment for a Nanny
If a nanny is employed, then not only will he / she not be responsible for accounting to HMRC for their national insurance contributions and income tax but they will also have the benefit of
- statutory sick pay should they fall ill
- holiday pay so that can take a break and still get paid
- maternity pay if they fall pregnant
- right to regular pay
- right to state pension
- right to protection for unfair dismissal
- and the list goes on……..
If a nanny is self-employed, none of the above benefits apply.
In addition, any employer employing someone has to take out employer’s liability insurance which protects their employees in the work place should they or their property be damaged. If a nanny is self-employed, it is his / her responsibility to take out and pay for public liability insurance to protect herself in case of an accident.
Benefits of Employment for a Parent
Unfortunately there are no benefits aside from avoiding financial penalties and a possible criminal record. This seems like a fairly large benefit to us.
Please note that a parent is able to reclaim statutory sick pay or statutory maternity pay provided a certain amount of NIC has been paid. Parental Choice can help you with this recovery.
It is important for nanny and parent alike that they are absolutely certain on the employment status between them. If you have any queries, please do ask us.
Parental Choice is working on your behalf should you need any more information on whether a nanny is self-employed or not. We can help you with the salary calculations and determining the financial implications for your family of setting up a payroll and employing a nanny. Let us help you.