I always knew that having children would introduce me to new experiences. A lack of sleep. Prams. An inability to achieve a work-life balance.

But I never expected it would force me to become a human resources expert or to be forced to adopt the skills of a microbusiness manager.

At the time of my pregnancy and later during maternity leave, I rationalised that career-focused women have kids all the time. They all somehow managed to organise and pay for childcare. It couldn’t possibly be that difficult.

But this, it turns out, was wishful thinking. As a recent Mumsnet survey by the Greycoat Lumleys agency confirmed, almost half of all parents surveyed said it was difficult or very difficult to find suitable childcare.

The burden is all the greater if grandparents are no longer around or too far away to offer help. Doubly so, if nurseries aren’t conveniently located or, as in my case, the one-hour commute to and from work is too prone to unexpected delays to make nurseries viable.

For all of the reasons above, when I came back to work full-time this year I opted for the nanny route.

This article is the one I wish I had read before attempting to hire a nanny. If you’re about to become a parent (or know someone who is), I truly hope that reading this will help you navigate the financial challenges, as well as saving precious hours of your time. 

Nanny numbers 

When I first started looking into the cost of hiring a nanny, the numbers appeared to stack up. Nurseries, after all, don’t feel all that cheap. In London, the average Ofsted-rated facility charges between £70 and £85 a day. It’s a bit lower in the outskirts of London (£65-£70) but at the high end that amounts to as much as £425 a week or a whopping £20,000 a year even after holidays are included.

Add to that the 30-40 minute additional commuting time and the penalties associated with being late for pick-ups, or having to take your child home when ill, and nannies suddenly begin to look competitive. All the more so if you’ve got additional bedroom space in your house and can accommodate a live-in arrangement.

Nannies starting out in the business or happy to live in with families advertised their services for as little as £8-£9 an hour, taking home about £384-£432 for a 48-hour week. What was there not to like?

Well, it turns out that assumption was my first mistake. In the nanny world, hourly rates are never what they seem.

For some strange reason — possibly due to legacy cash-in-hand tendencies — professional childcarers just don’t do gross hourly wages. All adverts are on net terms, meaning any law-abiding employer who is committed to paying their fair share of tax must work out the amendments to gross themselves.

You might think it’s a simple calculation. It’s not. Tax rates and allowances are invariably subject to annual revision, something that leaves the employer fielding a variable payment schedule year-to-year.

The nanny you employ may or may not have used all her tax-free allowance, or in the case of nanny-shares she may have offered it to her other employer. The latter can involve a complex negotiation with a third party that you may or may not get on with. Some nannies, meanwhile, still have student loan repayment obligations that, as their employer, you will find you have to manage. 

Lastly, even after you’ve calculated the gross tax, as an employer you’re still liable for both the employee and employer national insurance contributions. And to top it all off, there’s the pension contribution you must provide (and set up) if your nanny decides to opt in.

All of this ensures that even if you’re advertising for a £9 an hour live-in position, your overall gross liability is unknowable until the very specific circumstances of your nanny become known to you. Sometimes, that’s not possible until you’ve already made the job offer.

Izabella Kaminska and her daughter Leia
Izabella Kaminska and her daughter Leia at their home in west London © Charlie Bibby/FT

Going gross

Some nannies and agencies recognise this problem. Many have been campaigning for the industry to “go gross” as they seek to regulate the sector and bring it in line with other professions. But the campaign doesn’t seem to be going very far — which is odd because the advantages seem so obvious.

As employers, if parents knew their true cost from the outset, more couples could be persuaded to hire a nanny. And from a nanny’s perspective, going gross reduces job insecurity. If employers know their total costs when hiring, they are less likely to be caught out (trust me, I have spoken to plenty of parents who have changed their minds after the true costs became known). 

However, the net convention stubbornly perpetuates. It’s tempting to conclude this is because cash-in-hand agreements are far more entrenched in the childcare sector than anyone would care to admit.

I asked one longtime nanny in west London why she thought nannies were so stuck on net figures. She blamed it on the agencies, suggesting the net convention helps them attract more clients because it makes nannies look cheaper than they are.

But the agencies, conversely, tend to blame the nannies. Frankie Gray, founder of the Harmony at Home agency, told me: “We as an agency always quote gross, but the nannies still want net, and they just want to know what they take home. It’s so ingrained.”

Her comments were echoed by one former career woman who became a nanny-agent after going back to work proved more challenging than she anticipated.

“It’s a historical quirk . . . it plays into the hands of the black market economy,” she says. “As agencies, we encourage parents to pay tax and national insurance, but we can’t make them do it. There’s a huge trade of nannies on [local listing] sites, and that’s catering to families who don’t want to pay tax and national insurance,” she adds. 

In 2012, HMRC launched a crackdown on families employing nannies yet avoiding tax and national insurance payments, a move that industry professionals say had an immediate impact. Fearing costly penalties and convictions, many parents begrudgingly brought off-the-book arrangements into the light.

Yet in many cases, parents have told me their motivation for dodging tax wasn’t just about saving cash — but saving time. The complexity and administrative rigmarole associated with managing payrolls and HR issues such as pensions and maternity cover were often seen to be just as off-putting.

Parents lacking the skills, understanding or spare resources to manage these responsibilities kept nannies off the books simply because it lowered the cognitive load of having to manage nannies formally as employees.

Dodging tax is obviously not fair to the nanny either. Even if they didn’t get caught by the tax authorities (and plenty have been, when changing to a more reputable employer who demanded a P45) their NI contributions record will be the poorer. 

So what’s the solution? Well, the tax crackdown was a boon for third-party payroll experts such as Nannytax and Nannypaye who specialise in managing the payroll on behalf of nanny employers, thus taking some of the load off parents.

Yet, even with their help — which costs about £300 a year — the net convention at the contracting point still ensures ongoing complexity and confusion.

“We talk in gross figures but a lot of nannies say they don’t understand,” says Kirsty Wild, head of sales and marketing at services provider Nannytax. In a bid to push the industry towards gross, Nannytax has committed to publishing its industry statistics on gross terms.

On that basis, their annual Nanny Salary Index for 2018-19 found the average gross hourly wage for nannies outside the capital was £10.96 per hour for live-out and £9.76 per hour for live-in. In London, the index puts the average for a live-out nanny at £13.35 per hour, falling to £8.32 per hour for a live-in. 

But in my experience, the minimum price that London nannies would respond to in agency ads was £12-£13 net per hour for a live-out position, and £8-£9.50 net per hour for live-in. Something doesn’t seem to square with these figures.

Agent nanny

If you have a network of friends or family who are already in the nanny market, you might be very lucky and get a tip off on a good available nanny. Otherwise, you’ll have had to resort to an agency exposing you to further costs and admin.

The first hurdle comes in choosing the right sort of agency. Most charge introduction fees as a percentage of the nanny’s annual gross salary (one of the rare places the industry is prepared to use gross figures) while others also charge registration fees. Either way, this will add significantly to your costs — meaning spending what precious free time you have researching the best options can pay off handsomely.

In my case, I was already on the books of the Eden Private Staff agency because I’d previously hired a maternity nurse with them. This meant I was entitled to a 10 per cent discount as a returning customer. That felt like a big incentive to use them again. But to be frank, I also didn’t have the mental strength to commit to any more research.

Had I been really savvy, I might have ventured into the online childcare platform world. Sites such as Childcare.co.uk charge £24.99 a month and allow you to sift through scores of prospective nannies operating in your area and then message them through their systems. But they don’t do the vetting work. Nannies upload proof of qualifications and background checks — including the all-important Disclosure and Barring Service (DBS) check — but it’s up to parents to verify these.

There was mixed feedback from other parents who have used the site. If a parent has the time and inclination to wade through all the documentation and conduct even more interviews, it’s possibly worth it. But there are no guarantees or fallbacks if things go wrong. Most professional agencies, on the other hand, provide some sort of provision if the relationship doesn’t work out — usually by waiving the fee on any subsequent replacement.

In the case of high-end agencies such as Greycoat Lumleys, it’s even better than that. “On our introductory fees, there is a three-month guarantee of a free replacement and everything is a little bit flexible,” says Debbie Salter, managing director, adding that if anything goes wrong within eight weeks of starting the contract, Greycoat is happy to refund 50 per cent of the fee.

The endless add-ons

By the time a parent has found their nanny, crafted the contract, paid the agency fee, paid the payroll company, worked out their tax and national insurance exposures, paid for liability insurance and auto-enrolled their nanny into a pension scheme they’re likely to have been entirely drained of both financial and mental resources.

The financial hit is often so big, some parents openly question the fairness of the UK’s tax framework. Unlike corporations, which are taxed only on their final profit, many parents feel they are being unfairly disadvantaged by having to pay taxes for a nanny out of their already taxed income. In theory, childcare is a work-related expense and there is some logic in making it tax deductible.

The argument against a tax exemption for childcare is that there are other costs such as commuting that the same logic could also apply to. It’s also likely the benefits would go to relatively affluent parents. The FT’s Martin Wolf told me a better route might be using fiscal resources to support universal nursery education. This occurs in France, where the average crèche cost for an affluent parent is half the cost in the UK.

The high cost of sending a child to nursery has also featured in party manifesto pledges ahead of next week’s election, with the Liberal Democrats promising free childcare for working parents, and Labour pledging to extend the 30 “free” hours of childcare — another ridiculously complex system (though that’s another story). 

But the financial challenges of employing a nanny keep on coming.

As an employer you have to provide sick pay and holiday pay (taking the nanny on holiday with you does not count — in fact, most nanny agencies say you’ll have to pay your nanny extra for this or grant them time off in lieu). And your nanny might not want to take her own annual leave to coincide with when you’re away. This can add significantly to expenses, as parents pay the nanny’s holiday pay and for substitute childcare on top.

And it shouldn't come as a surprise that women who have chosen to become professional childcarers often want to have children of their own. In the event that your nanny does become pregnant, as an employer, you are obliged to offer all statutory maternity benefits.

That includes time off for maternity-related healthcare appointments, and 52 weeks maternity leave, 39 weeks of which is payable. 

As a small employer you can recover 103 per cent of these costs in advance from the government — 100 per cent of your nanny's gross wage plus 3 per cent of gross income to cover the employer's NI contribution. But you will be expected to manage the payments, the costs and admin of finding a replacement nanny — and hold the old nanny’s job open.

Another thing you will discover is that most nannies never work regular weekly hours. Parents are also responsible for recording and processing overtime payments and babysitting time via payroll as well.

When it comes to additional hours, emergency cover or babysitting, many parents are turning to apps like Bubble, which might reasonably be dubbed the Uber of childcare.

The platform works by allowing parents to put in a request, which the app then broadcasts to approved nannies in the vicinity, most of whom are DBS verified. They respond with their (theoretical) gross hourly rates which tend to range between £8 and £16 an hour in London. All payments go through the platform and you can rebook the same nanny if they’re available. But by and large, the system sees itself as a marketplace and orientates towards supplying a different nanny each time.

Unlike childcare.co.uk, Ari Last, the app’s founder and chief executive, says Bubble verifies the qualifications that nannies submit. It also runs identity checks and background checks, and asks for endorsements from referees. All sitters are insured and nannies are further scrutinised with parental ratings.

But the really big upside with Bubble is that due to the ad hoc nature of the relationships, parents are not on the hook for paying taxes. And neither, apparently, is the platform. That does pose the question of who exactly is paying the tax? In theory, that should be the nanny. How many declare the additional earnings is another matter.

Get in touch

What are your experiences of hiring a nanny in the UK? Or, if you are a nanny, does the current tax system, including the obligations on employers, work well for you or not? Get in touch with your views by emailing money@ft.com

I asked HMRC how it viewed these types of apps and it responded: “Employment status is always dictated by the facts and when the wrong tax is being paid, we put things right.”

As a responsible (and grateful) employer of a now pregnant nanny, I want to be sure I’m paying the right amount of tax and offering the correct benefits. What I have come to resent, however, is how impossibly difficult it is to manage one’s own finances when doing so, because of the endless array of unknowable additional costs and expenses — not to mention the administrative burden — that lands squarely on the sleep-deprived shoulders of new parents.

Izabella Kaminska is the editor of FT Alphaville

Get alerts on UK employment when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article