Agreeing pay for two families who use the same nanny

Nannyshare arrangements can work well provided the arrangements and responsibilities are clear at the outset. The nanny’s pay is clearly one of the most critical considerations. We have plenty of experience in nannyshare calculations and we can help you decide what to pay and how to go about it.

Should we set up as one employer or two?

This usually depends on the type of share. If you have a separate share, where the nanny works for each family at different times, normally (but not always) on separate days, each family should be set up as an employer in their own right. This method is normally more cost effective, since the overall National Insurance bill can be significantly reduced.

If the nanny is working for both families at the same time, in one or other of the family homes, this is a joint share. The employers are deemed to be employing the nanny 'in association with each other', and should be set up as one employer. With this method, there is only one payroll and no NI saving.

Of course, a joint share is still much more cost effective than employing a nanny on your own, since the costs are effectively halved. Here we look at both methods in detail, beginning with Joint Nannyshares and moving on to Separate Shares. At the bottom of this page you will also find some very useful advice that applies to all nannyshares, including overtime and holiday pay.

How we set up your Joint Nannyshare (One Employer)

At the outset, we ask you for details of the net pay that your nanny is to receive, and the hours worked for each family. We use this to calculate a gross hourly rate for the nanny, which is the figure that should be entered in the contract of employment.

We calculate the cost per hour of paying the nanny, and a ratio for dividing this cost between the two families, e.g. 60:40. We provide you with an illustration, so that you can see what the agreement will cost before committing to anything. We can produce a number of illustrations, to allow you to compare costs for different situations or different candidates.

When both families have agreed on a proposal and the job has been accepted in principle, we provide the following documents:

  • A letter for your nanny explaining the gross agreement and laying out her pay rate
  • A Costing Statement, which clearly lays out the amount and timing of the banking transactions that will be required each month.

Generally we find that the transactions work best if the main contact family pays the nanny monthly, and pays HMRC monthly, with the share partner transferring their total monthly contribution to the main contact’s bank account beforehand. However, we can also manage weekly pay and / or paying HMRC quarterly if required.

Once the system is in place, we provide the main contact family with payslips and monthly reports which confirm the amounts payable to the nanny and to HMRC, and the total costs for the month.

Could I be held liable for the other family’s HMRC bills?

Good question. You will have to decide what name or names you want to be registered with. You could be set up under joint names, e.g. J & J Bloggs and A & B Smith, but you would be providing just one address. If you failed to pay over the deductions made, HMRC would take recovery proceedings using that address. The main contact family would have no option but to pay, and recover any amounts due from their share partner through the courts.

In practice, you can quite easily prevent this situation from arising in the first place. Provided both families are aware of the costs at the outset, and agree to the deadlines stipulated, any ’default’ will quickly become apparent. If the share partner does not pay their share of the employments costs, the nannyshare is immediately over and the employment should be terminated before any further costs are incurred.

How we set up your Separate Nannyshare (Two Employers)

At the outset, we ask you for details of the net pay that your nanny is to receive, and the hours worked for each family. We use this to calculate the gross payment that each employer should make. We supply you with illustrations, showing what your overall costs will be. We can produce a number of illustrations, so that you can compare costs for different situations or different candidates.

When both families have agreed on a proposal and the job has been accepted in principle, we supply you with a letter for your nanny explaining the gross agreement and laying out her pay rate. The gross pay rate should also be entered in the contract of employment.

Each week or month we produce 2 payslips, one for each employer. The payslips show the tax and NI deducted and each family pays over the net pay per their own payslip.

Could I be held liable for the other employer’s HMRC bills?

No. This method keeps everything separate. You are each registered separately with HMRC, so you pay separate tax and NI bills each quarter.

The second employer will have higher HMRC bills, but will be paying out less in net pay, so overall costs will be correctly proportioned between each family.

How are our overall costs affected?

By arranging your nannyshare in this way your could see a significant saving. Each employer is allowed to pay a fixed amount each week before National Insurance is applied. If there are two separate employers, the amount of pay that is free from NI is doubled. Normally, this means a saving of at least £23 per week.

Does the nanny need to contact the tax office to split her tax code?

No. She will automatically receive a higher net pay from the employer who has the tax code, and a lower net pay from the second employer. Added together, she will receive the correct net pay. Splitting the tax code will not increase her pay overall.

Are there any disadvantages?

You each have to calculate and maintain payroll records (or pay us to do it for you). That means you each pay an annual subscription fee. However, if you join us together you can take advantage of a reduced introductory rate for nannyshares. You each pay £199.00 instead of £225.00.

Are there any other implications I should know about?

Your nanny has two separate employers, so if she is sick she could be entitled to SSP from each. Provided her earnings in each employment were high enough, she would receive double the normal rate of SSP. The same could apply to SMP if she has a baby.

All SMP and almost all SSP is funded by HMRC, so neither employer would be out of pocket.

Are there any other options?

The employers could contract to pay the nanny her fixed net pay + taxes (instead of a fixed gross pay less taxes) and arrange a tax code split with HMRC. Unfortunately, this method can be fraught with problems for the employers and the nanny, so we always try to arrange a fixed gross pay agreement instead. Please ask for our separate helpsheet 'Split tax code or Gross Pay agreement' for more information. Or ask any accountant!

Having said all that, we would, of course, be happy to help your nanny arrange a tax code split if you decide to go down that route.

General Nannyshare Advice

You will have gathered by now that nannyshares can be very complex. This section lists some further considerations, which apply whether you set up as one employer or two.

Gross v Net Pay Agreement for nannyshares

We set up all our shares on a gross pay agreement basis, so that we can fix your costs as employers at the outset. By agreeing a gross rate instead of a net, you are protected from unexpected tax increases, e.g. if your nanny were to owe backdated tax, or have self-employed income, or have tax credits to repay.

Of course, if less tax is due, the nanny will benefit. Under the gross pay agreement, her net pay varies in accordance with her individual tax circumstances, which is the basic premise behind the entire PAYE system.

Pay adjustments, e.g. overtime

Once the gross agreement is in place, all related calculations are also gross, e.g. holiday pay and overtime. The original ‘expected net’ is only used in the initial calculation to arrive at the equivalent gross. Thereafter the gross rate applies to all calculations.

If there is overtime, or sickness, or any other adjustment, just let us know and we will alter the payslip accordingly. The nanny’s net pay and HMRC bill will be adjusted accordingly, and we will inform you of the impact on your costs for the month.

An important note about getting it right

Your nanny probably views her pay as the most important aspect of her employment. If you are late with it, or there are issues over who pays what, she will quickly look for a position elsewhere and all the time, effort and cost of recruitment will be wasted.

Whether you are setting up as one employer or two, both families must feel confident about meeting their responsibilities. This is why we take the time to lay out each family’s responsibilities, clearing explaining how much each family should pay, who they should pay it to and by what deadlines.

Once you are up and running, it should be possible to set up standing orders to cover most of the transactions. We will advise you accordingly.

Nannyshare Holidays

Holidays do not normally impact upon the nanny's payslip, at least not until she leaves, when any holidays accrued but not taken are paid. However, they will form a crucial part of your share agreement, so it is important that you consider them fully at the outset.

The nanny will be entitled to 28 days pa (from April 2009), reduced prorata if she works less than 5 days per week, and inclusive of bank holidays.

Ideally, both families and the nanny will all take their holidays at exactly the same time, in which case neither family is paying for childcare they are not using and neither family has to arrange holiday cover. In practice, this is almost certainly not going to be achievable. However, you can keep disruption and costs to a minimum by co-ordinating as much as possible. For example, all parties might agree to at least one week, perhaps two weeks at Christmas each year.

Key nannyshare holiday considerations:

  • Your nanny must be allowed to take her full holiday entitlement. We can calculate this for you.
  • Entitlement is set in law at 28 days pa, so that full-time employees get the equivalent of 4 weeks + all bank holidays
  • You must use the wording '28 days' in the contract (reduced prorata for part-timers). From April 2009 contracts that say 4 weeks + bank holidays are incorrect and will often result in part-time nannies having too many or too few holidays.
  • In law, an employer can specify when an employee can take her holidays, but that is rarely applied to nannies (or most other professions).
  • Most agreements are based on the nanny specifying half the holidays and the family specifying the remainder.
  • In a share arrangement, this may mean that the 28 days are taken as follows: 8 bank holidays, 5 additional days at Christmas, 5 floating days chosen by each family and 5 floating days chosen by the nanny. However, the nanny may reasonably want to be able to choose 10 days in one block so that she can go abroad for a fortnight. Disagreements are inevitable unless you put a policy in writing at the outset.
  • If you wish your nanny to take annual leave, perhaps because you will be away, you must make this clear in advance. You cannot declare time off as being holiday after the event.
  • The only exception to this is bank holidays, when it is generally assumed that the nanny will not work. For a full-time nanny, 8 of her holiday days will normally be used on bank holidays.
  • There is no special treatment for nannies who do work on bank holidays; they simply take the day at another time.
  • If you know that you will not need your nanny for at least 5 weeks in the year, you could offer 5 weeks holiday instead of 4. This enhances the value of the contract at no additional cost to you, since you will have to pay full wages anyway when you are away.

Please get in touch if you would like more advice about nannyshare holidays.

Would you like a free illustration?

Please call our nannyshare expert Alison Hull on 01275 464425 or email alison@nannymatters.co.uk with the hours of work and how much your nanny is expecting to receive. We will put together an illustration for you at no charge. You do not need to pay us anything until the proposal is agreed, and there are no charges other than your normal annual subscription.