Schools are closed for the summer and with the high cost of childcare, people might consider taking on a nanny. But there are additional costs you need to think about – not just the advertised rate.
Household budgets are under pressure due to rising inflation and rising energy bills, and many people are looking to cut spending wherever they can. Child care is an essential expense; it is not something that can be easily reduced or cut from the household budget, and moving children from one environment to another in an effort to save on expenses is less than ideal.
There is a shortage of nursery places across the country and even if parents can secure a place, the average childcare costs of £7,212 a year for a child under two can be a considerable burden.
Many parents find they are in a double bind as statutory maternity payment stops after 39 weeks of leave, putting pressure on mothers to return to work, but childcare is so expensive that it doesn’t always make financial sense for some parents to work as many hours as they would like.
What is the best type of childcare?
There is no single “best” or “most affordable” option for childcare, as each family will need their children to be cared for on different days and at varying times. In an ideal world, children would be cared for in the environment that best suits them, but realistically parents need to consider a range of factors when making the decision, including their working hours, their cost, the location of the child care and the needs of their child.
After crunching the numbers for the different options – nurseries, playgroups or local nannies – some parents find that the cost and practical benefits of hiring a nanny stack up well in comparison.
How much does a nanny cost?
The Annual Nanny Wage Index pegs the average cost of a live-in nanny working 50 hours a week outside London at £12.52 per hour, or £2,713 per month.
These figures vary by region and are higher in London, where the average rate is £15.31 per hour or £3,317 per month.
Can a nanny be profitable?
Because a nanny takes care of your children in your own home, the hassle of getting to a nursery to drop them off and pick them up and then to work is removed. This could significantly reduce car costs for some parents, especially as petrol prices have reached record highs and it now costs over £100 to fill up the average family car.
With a nanny, you can specify the times your children should be cared for according to your own schedule, rather than the usual 8am to 5pm hours when many nurseries are open. This can remove the ‘late collection’ fees that some parents rack up when their commuting or work hours are so subject to disruption that it’s difficult to get to nursery on time.
With a nanny at home, parents can leave food for the children rather than paying for meals at crèches, which are not included in the government’s 30-hour free childcare scheme. Nursery meal plans can cost around £2-5 a day and so feeding children at home could be a more cost effective way of managing the family food budget.
Parents of two or more young children often find hiring a nanny cheaper than paying private daycare costs for each of them. Meanwhile, families with children of different ages may find it easier to have someone who can look after a toddler during the day, pick up their sibling from primary school in the afternoon. and be there when an older child also comes home.
What to think about before hiring a nanny
The days of paying nannies informally with cash in hand are long gone – the system is now more formal to protect your family and child care workers. Nannies are generally not considered self-employed, unlike gardeners or even childminders. Instead, parents are generally considered employers and are legally liable for nanny taxes. This is still the case when you find a nanny through a specialized agency; agencies will vet nannies, but as a parent you are the employer.
Nannies differ from childminders, who are normally self-employed, because childminders often have a varied clientele (different families) and can choose their working hours from their home. Nannies usually work for one or two families, on the hours they need, and have to do the tasks the parents need them to do – they can’t choose their job.
Parents hiring a nanny have a number of things to consider in terms of administration and additional costs, whether the nanny is a resident or not.
Pay
It is common for nannies to state their hourly pay as a net figure – without tax. This is the amount your nanny expects to take home after tax. This applies to ads in nanny agencies and private ads, perhaps because it makes the hourly cost of hiring a nanny lower and more attractive.
To calculate the real cost that you will pay as an employer (the gross cost), you must “gross up” by adding the tax that the nanny, your employee, must pay in addition. There are websites that help you find it, such as Personal tax.
This applies whether you are browsing advertisements for nannies or advertising for a position in your household. If you state that you are looking for childcare at £10 an hour, for example, state that this is a net amount excluding tax.
Keep in mind that tax brackets can change every year, so you need to keep up to date with this every tax year.
There are agencies that have sprung up to handle payroll and tax matters on behalf of parents, such as Nannytax or Nannypaye. Using one can ease your administrative burden and give you confidence that everything is done correctly, although of course they charge a fee for their services.
Pension
As an employer, you will need to offer your nanny a pension if she is aged 22 or over and earns more than £10,000 from you. If they decide they want a pension, you should contribute on their behalf and set up a pension plan for them if they don’t already have one.
NEST can be useful if you are looking for a retirement plan. This is a government pension scheme that small employers can enroll their workers in, at no cost to the employer.
Other deductions
As an employer, you are legally responsible for employees’ national insurance contributions, so you must calculate them and ensure they are paid.
Nannies may have student loan repayments that they are legally required to make, so this is another consideration.
To go on holiday
Like all employees, nannies are entitled to paid leave. The amount you offer should be specified in the contract you write initially, but you will have to respect the legal minimum i.e. 28 days of paid vacation per year.
You may think your nanny will jump at the chance to join your family on vacation, but remember this is a working agreement between you as the employer and your employee. A holiday with your family should not count towards your nanny’s annual leave entitlement, however much fun she will have during the trip.
Nannies are often paid at a higher rate during periods of travel away from home, as this often involves longer hours. Resident nannies will effectively become resident staff during the holidays and with that comes added stress, so you need to accommodate them appropriately. Parents sometimes offer their nanny time off to compensate for working longer hours than usual.
Calculating the total cost of hiring a nanny may seem complex, but when parents have done it once, it becomes easier. Nannies can be a cost-effective and convenient form of childcare for those who can afford it, and the peace of mind of having your children looked after at home can be invaluable.
Annabelle Williams is a personal finance specialist at Nutmeg
