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Warning to parents: employing nannies or other carers may come at a cost

Posted on 01 July 2015

Did you ever imagine when you engaged someone to look after your child that you would become responsible for their tax, NI and now pension?

I’ve been talking with parents that directly employ someone to care for their child and have discovered many feel confused and anxious about their responsibilities. So we’ve produced a guide to your pension responsibilities in a nutshell.

What’s new?

New legislation came into effect 1st June 2015 requiring anyone employing a carer to enroll them into a pension scheme.  Read on to understand what you must do and by when.

What is auto-enrolment?

Auto-enrolment is a government initiative designed to improve pension savings in the UK.  Rather than leaving employees to decide whether they wish to save for a pension they are automatically enrolled into a scheme by their employer.

Am I classified as an employer?

Anyone who works in a private home is treated as an employee if they only work for one family, except for au pairs.

This includes nannies and child-minders or a personal assistant helping you with care and support.  In short you are their employer if you hire them.

Who is eligible for auto-enrolment?

Your employee qualifies for the scheme if they are; over 22 years old, paid more than the minimum earnings threshold (currently £10,000 per year), not already in a workplace pension scheme, not yet state pension age, primarily employed in the UK according to their contract.

What are your auto-enrolment responsibilities as an employer?

You must auto-enrol your nanny into a qualifying pension scheme within the next three years.

Each employer will be notified by the Pensions Regulator when their staging date is 18 to 12 months in advance. The Staging Date is the date by which you have to have set up the scheme so if you haven’t been notified you have some time.

What are the cost implications?

You will have to pay a minimum contribution based on your employee’s  “qualifying earnings”. These are currently the amount between an annual gross salary of £5,824 and £42,385.

Contributions start at 1% of a nanny’s gross salary until September 2017 (along with a 0.8% nanny contribution and 0.2% by the government). An employer’s contribution will rise to 3% by 2018. 

As pension contributions are based on your employee’s gross earnings it’s crucial you agree a gross salary with your employee or you could end up paying a lot more.

What if my nanny says they don’t want to be auto-enroled?

You are still legally obliged to enroll them.  Once registered, they have the option of opting out within a month of their registration date. 

In other words you will have to set up a pension scheme before your nanny can opt out of it.  If they miss the month’s opt out deadline they won’t be able to get their money out of the scheme until they retire.

Only nannies employed for less than three months are exempt from auto-enrolment.   

Please note Nannies employed on a part time basis are not exempt.  As long as they earn between £5,824 and £42,385 per year, they qualify for automatic enrolment.

When do I have to start paying for my nanny’s pension?

The new rules are being gradually rolled out which means the date you will need to have set up your nanny’s pension by will vary, depending on when you hired your nanny.

The Pensions Regulator will write to you 12 months and then three months, before you are due to enrol your employee in the scheme. 

How do I enroll my nanny in a pension scheme?

Are you already using a payroll agency to pay your Nanny’s wages?  If so they will organise auto-enrolment on your behalf (for an additional cost).  If not, you’ll have to do it yourself.  

Can I avoid auto-enrolment?

Astronomical costs of childcare in the UK may tempt some parents to pay nannies cash in hand in order to fly under the radar avoiding the extra cost of a pension, national insurance and income tax, not to mention the hassle of setting up a scheme.  This is obviously illegal.

Please be aware that the pensions regulator has teeth and has issued a stark warning to parents that failure to comply with the rules will result in a fixed fine of £400 plus a daily fine of £50. 

Further information

For simple, clear advice on all your responsibilities as an employer visit Gov.uk

BAPN  - the association for professional nannies contains a wealth of help and guidance for parents employing nannies.

Norland Nannies have produced a really helpful factsheet to help answer any questions your nanny may have.