When you employ a nanny, navigating payroll rules probably wasn’t something you ever imagined you'd have to master. But recent changes to National Insurance (NI) contributions have caused confusion for many families employing childcare professionals—and this confusion could be costing you money without you even realising it.
At NannyMatters, we’ve spent more than 25 years managing payroll for nanny employers. We understand exactly how these changes impact your costs and what you need to do to remain informed and financially secure.
In this blog, we’ll clearly outline recent NI changes, why they’re catching many families off guard, and explain why gross pay agreements are essential to protect your budget.
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A Quick Refresher on National Insurance (NI)
National Insurance is a mandatory deduction from earnings, funding the NHS, state pensions, and welfare benefits. If you're employing a nanny, there are two key components of NI you need to understand:
- Employee NI (Class 1 Primary): Deducted directly from your nanny’s gross salary.
- Employer NI (Class 1 Secondary): Paid by you, on top of your nanny’s gross pay.
Unlike larger employers with HR teams, nanny employers often manage payroll without extensive support, making clarity and accurate advice crucial.
What Changed Recently (and Why It Matters)
In early 2024, the UK government significantly reduced employee NI contributions, meaning workers, including nannies, kept more of their gross pay:
|
Period |
Employee NI Rate |
|
Until Jan 2024 |
12% |
|
Jan – Mar 2024 |
10% |
|
Apr 2024 onwards |
8% |
This meant nannies paid via a gross pay agreement immediately benefitted from a higher net (take-home) salary without extra cost to the employer.
However, in April 2025, the government increased employer NI rates from 13.8% to 15% and significantly lowered the threshold at which Employer NI becomes payable (from £9,100 down to £5,000 annually).
For employers, this represented a sudden jump in costs, increasing the monthly bill substantially.
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Why Gross Pay is Always Recommended
At NannyMatters, our decades of experience show clearly that gross pay agreements are always preferable because:
- They provide clarity and cost stability.
- They protect you from unexpected payroll increases if tax legislation changes.
- They align your employment practice with industry standards, reducing confusion and disputes.
For nannies, gross pay agreements also offer transparency and clarity, enabling them to fully understand and plan their financial situation.
Real-World Example: What Can Go Wrong With Net Pay Agreements
Here's a practical example:
“We agreed to pay our nanny £500 net weekly. Initially, everything seemed straightforward, but when nanny’s tax code changed unexpectedly, the gross amount required to meet that fixed net pay rose sharply. Suddenly, we were spending nearly £70 more per month than planned. It was confusing and stressful.”
Had this family opted for a gross pay agreement, their payroll cost would have stayed fixed, avoiding this stress entirely.
The April 2025 Changes in Detail (Now in Effect)
Since April 2025, these changes have significantly impacted payroll for nanny employers:
- Employer NI rose to 15% (from the previous rate of 13.8%).
- Employer NI threshold reduced significantly from £9,100 to £5,000 annually, meaning employers now pay NI contributions on a larger portion of their nanny’s salary.
These changes mean that, if you’re using a net pay agreement, your potential exposure to cost increases is now even greater. Families who previously felt safe under net pay agreements could now be paying substantially more without realising it.
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How NannyMatters Can Help
At NannyMatters, our expert team has already adapted our payroll services to reflect these changes. We handle all the complexities, including:
- Calculating accurate deductions for tax, NI, and pensions.
- Submitting Real Time Information (RTI) accurately to HMRC.
- Providing transparent payslips clearly outlining gross, deductions, and net pay.
- Offering ongoing expert advice and updates tailored specifically to nanny employment.
With decades of experience, we understand exactly how these legislative changes affect nanny employers, often alerting clients before these changes become widespread knowledge.
Key Takeaways and Future Preparedness
The recent employer NI increases reinforce why a gross pay agreement is the only truly predictable and financially prudent choice for nanny payroll.
We recommend that all nanny employers:
- Immediately check if you currently operate on a net or gross pay agreement.
- Switch to a gross pay agreement if you’re still on a net arrangement.
- Regularly review your payroll arrangements to anticipate future legislative changes and avoid unexpected costs.
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Final Thought: Payroll Isn't Just Admin—It's Essential Household Management
Handling payroll correctly and efficiently safeguards your budget, ensures compliance, and creates transparency and trust between you and your nanny.
At NannyMatters, we’re proud to offer clear, expert advice that nanny employers have trusted for over 25 years, ensuring peace of mind and financial clarity. We'll check your current payroll arrangements, clearly explain your options, and ensure you're confidently prepared for the future.
Want Expert Help Reviewing Your Payroll Setup?
📞 Contact our friendly payroll experts at NannyMatters today.
