Paying someone to work in your home can make you an employer in the eyes of the law, with the same core duties as a business. Most people who employ a nanny have no idea this applies to them, and HMRC does not accept “I did not realise” as a defence.
The good news is that plenty of arrangements fall outside it entirely.
Are you actually the employer?
The question is not what you call the arrangement — it is who controls the work.
| Situation | Are you the employer? |
|---|---|
| Cleaner from an agency, agency invoices you | No — the agency employs them |
| Self-employed cleaner with several clients, own equipment, sets own hours | Usually no |
| Nanny working set hours in your home, you direct the work | Yes |
| Carer you engage directly and manage | Usually yes |
| Nanny share across two families | Yes — you are both employers |
A nanny is nearly always an employee. They work in your home, to your hours, with your children, under your direction. That is employment however the arrangement is described, and a nanny cannot simply declare themselves self-employed to avoid it.
When PAYE actually kicks in
You must register with HMRC as an employer if any of the following is true:
- You pay them £125 a week or more — the Lower Earnings Limit
- They have another job
- They receive a pension
- You provide benefits in kind, such as a car or accommodation
A cleaner paid £40 a week with no other job falls below every threshold, and you have nothing to register. A full-time nanny will be well above it.
The trap: the second job test. Someone below the earnings threshold with you but working elsewhere still needs PAYE operating, usually on a BR code, because their combined income uses the allowance up. Always ask whether they have another job.
What you have to do
- Register as an employer with HMRC before the first payday — allow up to 15 working days
- Run payroll and report on or before each payday through RTI
- Give a payslip every payday — a legal right, not a courtesy
- Pay HMRC by the 22nd of the following month
- Assess for a workplace pension — auto-enrolment applies to household employers too
- Hold employers’ liability insurance — check your home insurance, as many policies include it for domestic staff
- Give a written statement of employment particulars on or before day one
What it costs
The wage is not the cost. On top you pay employer National Insurance at 15% above £5,000 a year, and a pension contribution of at least 3% of qualifying earnings if they are eligible.
You cannot claim the Employment Allowance against the National Insurance for someone employed for personal, household or domestic work — it is specifically excluded, unless they are a care or support worker. Many household employers assume otherwise.
| Item | Annual |
|---|---|
| Nanny salary | £28,000.00 |
| Employer National Insurance | £3,450.00 |
| Employer pension (3% of qualifying earnings) | £652.80 |
| Total cost | £32,102.80 |
Gross, not net
Nanny wages are often discussed in net terms — “£500 a week in hand”. Agree gross figures instead.
If you agree net pay, you absorb every future change: a tax code adjustment, a student loan starting, their second job changing. Their tax becomes your unpredictable liability, and a net agreement can cost noticeably more than the equivalent gross one.
Their rights are the same as anyone’s
- National Minimum Wage — including for live-in staff, and the old family-member exemption no longer applies
- 5.6 weeks holiday a year
- Statutory Sick Pay if they qualify
- Statutory maternity and paternity pay, most of which you can reclaim
- Notice and unfair dismissal protection after the qualifying period
- Working time limits, and rest breaks
Live-in accommodation can count towards the minimum wage only up to the daily offset, and only where genuinely provided as accommodation.
Common mistakes
- “It is cash in hand, so it does not count” — payment method is irrelevant to whether tax is due
- “They said they are self-employed” — status is determined by the working arrangement, not agreement, and the liability lands on you
- Agreeing net pay — it transfers their tax risk to you
- Ignoring the pension — auto-enrolment applies at home too
- Assuming the Employment Allowance applies — it does not for domestic staff
- No written terms — required on or before the first day
Our free payslip generator produces compliant payslips with PAYE and National Insurance worked out automatically, and the employment cost calculator shows the full cost before you commit. For the deductions themselves, see our payslip guide.