Nanny Payroll Service

What if my nanny has a second job?

When a nanny has just one employer, the pay records are relatively straightforward.  In most cases the employer starts by agreeing a net pay, i.e. the amount the nanny will take home.  Then they operate the ‘normal’ tax code to arrive at the tax and national insurance they must pay on the nanny’s behalf.  Problems arise when there is more than one employer.

Tax Implications

The employer for whom she works most hours is generally deemed to be the main employer and retains the ‘normal’ tax code, currently 647L.  This means that they can pay the nanny her first £6475pa (or £124 per week) tax-free.  This tax-free portion of her pay is called her allowances.  The employer only pays tax on the remaining wages, i.e. the amount that exceeds £124 per week.

The second employer does not have any allowances to use, so is obliged to calculate tax on every pound paid using the very expensive Basic Rate tax code.  You can see the cost of this in the example below.  It assumes the nanny works 2 days for each employer, at £80 net per day.

	Main Employer (2 days)  £	Second employer (2 days)  £	Total £
Allowances	All	None (so BR)
Gross pay	178	214	392
Less tax	11	43
Less NI	7	11
= Net pay	160	160	320

Splitting the tax code

One option open to the nanny is to split her tax code between the 2 employments.  In this example each employer would get half of her allowances:

	Main Employer (2 days) £	Second employer (2 days) £	Total £
Allowances	Half	Half
Gross pay	196	196	392
Less tax	27	27
Less NI	9	9
= Net pay	160	160	320

As you can see, this allows the tax burden to be spread fairly.  However, there are some important considerations.  Firstly, it is entirely up to the employee to decide how her code should be split.  If she does decide to split it, only she can contact the tax office concerned.  HMRC may take weeks to process her request and issue the new tax codes to the employers.  In the meantime, the second employer has no option but to continue operating the expensive Basic Rate tax code.  When the new tax code does come through, it will almost certainly not be backdated. 

It is also worth bearing in mind that splitting the tax code does not actually reduce the overall tax burden.  However, it does mean that the two employers pay tax at the same rates, which is a fairer approach.  If the nanny chooses to go down this route, we can help by providing her with all the information and contact details that she needs.

Changing the contract to a ‘gross’ agreement

The reason the situation seems to be fraught with difficulties is because the PAYE system is not designed with net pay agreements in mind.  Almost all other professions agree a gross wage or salary, then the tax code determines the tax payable and the resultant net pay.  This means that an employee’s net pay varies in accordance with their individual tax circumstances, which is the basic premise behind the entire PAYE system.

By transferring to a gross agreement it is possible to achieve the same effect as splitting the tax code, without having to involve HMRC to get the tax codes changed.  Taking the same example as before, we can fix the gross pay, instead of the net, so the pay rate becomes £98 gross per day (not £80 net).  This is the result:

	Main Employer (2 days) £	Second employer (2 days) £	Total
Allowances	All	None (so BR)
Gross pay	196	196	392
Less tax	14	39
Less NI	10	9
= Net pay	172	148	320

As you can see, it looks like the main employer is paying a higher daily rate, because the net pay is £172, compared with £148 from the second employer.  However, the second employer has to pay more to HMRC, so overall their total costs are fairly matched.  Crucially, when the nanny adds the net pays together, the overall take-home is 4 x £80 = £320, just as it would have been if the tax code had been split.

Of course, an employer and nanny can agree to transfer to a gross agreement at any time. There are other advantages too: if the nanny’s tax should become even more complicated, e.g. if she changes employment again, or has self-employed earnings, or an underpayment from a previous year, the employer is protected from any increase in tax payable.  Any underpayments arising would quite rightly be the nanny’s responsibility. 

Similarly, any overpayments in tax would result in an increase in net pay.  Under a gross agreement, the nanny benefits from tax rebates, which can arise when earnings fluctuate and during gaps in employments or periods of unpaid leave.

Crucially, changes in her tax code would affect her net pay, not the gross.

If you would like to transfer to a gross agreement we can calculate a new, gross pay rate for you.