Being a busy parent can feel like a juggling act. You have so many balls flying through the air, the fear is that you might drop one, adding to the stresses of family life.

You decided on a nanny for the extra support you need: smart move. But, when you employ a nanny, you’ll have legal obligations.

Don’t lose the benefits of hiring your new chief sidekick by getting bogged down in nanny payroll issues. Read on to find out how to sort it all in the time it takes to sip a café latte.

What’s Involved When You Become an Employer?

The short answer? A lot.

New Zealand takes employment law very seriously. Both employers and employees have responsibilities and rights.

Employers must treat their employees fairly and pay them at least the minimum wage set by the government. They must provide a written contract and also have a duty to ensure that the workplace is safe.

When hiring a nanny, you will become your nanny’s employer. There’s no way out. Long gone on are the days when you could slip your nanny an envelope of cash once a week, no questions asked.

The difficulty is that if you get anything wrong, no matter how well-intentioned you are, the consequences can land you in a load of very hot water.

These days, nannies will rightly expect that they’ll get paid properly, on time and receive a contract. As an employer, you’ll need to keep employee records such as their employment agreement along with salary, time worked and leave statements.

Hang On, Can’t My Nanny Be a Contractor?

This is a common misconception that confuses many employment relationships. It can lead to households not meeting their legal obligations as employers. Added to this, there can be severe repercussions for non-compliance.

We have put together a guide that will help you distinguish between employees and contractors. You can find it here.

An employee typically has little or no control over what they have to do in terms of where, when, and how they work. The employer, that’s you, mainly directs their work.

It is very rare for a nanny to meet the criteria needed to be a fully-fledged contractor. If you pay your nanny as a contractor when you should be paying them as an employee you could find yourself in all sorts of trouble.

How Pay The Nanny Will Help You

So, is there an easy way out of this huge administrative headache?

Yes, there is and that’s to outsource your tax and nanny payroll obligations to a third party, like Pay The Nanny.

The Relationship With the IRD

When you use Pay The Nanny, we effectively become a joint employer sitting alongside you. You’ll still have to issue an employment contract and you will be in total managerial control of your nanny’s workload.

What we do is assume the responsibility for paying your nanny and deducting the taxes payable to the IRD. For tax purposes, the relationship is between Pay The Nanny and the IRD. As a parent, you are effectively in the clear.

We have tried and tested processes in place related to deadlines, timesheets and nanny payroll periods.

That means your nanny can feel part of a household that takes their professional well-being seriously. They will know they’ll always get paid accurately and on time with payslips and proof of income as standard.

The Nanny Payroll Cycle and PAYE

Nannies who earn a salary get taxed directly from their pay. We refer to this as PAYE or pay as you earn. As an employer, it’s your responsibility to deduct and pay PAYE income tax on your nanny’s behalf.

For every payroll that we process, Pay The Nanny calculates the right amount that needs to get paid to the IRD. Those amounts, along with what your nanny is to receive as their salary net of tax, get taken from your nominated account by direct debit.

What About My Nanny’s Leave?

As an employee, your nanny has certain rights. These include paid annual and sick leave along with entitlements related to working on Public Holidays. Making sure your nanny gets the right payments for leave is complex.

Your nanny’s hours are likely to vary. It’s therefore relatively easy to under or overpay them. Pay The Nanny takes care of all the calculations for you so you don’t need to worry about getting everything right. 

What About KiwiSaver?

This offers the chance of a real and tangible benefit for all employees, nannies included.

It’s a voluntary savings scheme. It’s mainly there to help set employees up for retirement. They can make regular contributions from their pay or directly to their scheme provider.

As an employer, you will need to check if your new nanny is eligible for automatic enrolment in the scheme. If they are, you’ll need to set them up and make the relevant KiwiSaver deductions and compulsory contributions on their behalf. Pay The Nanny can take care of all this for you.

How Do Kiwisaver Contributions Work?

Like all other employees, nannies can choose to contribute 3, 4, 6, 8 or 10 percent of their gross salary to their KiwiSaver account. It is mandatory for an employer to match a minimum of 3 percent. They can, however, choose to match their employee’s contributions if they’re more than that.

If you negotiate KiwiSaver as part of the gross rate you pay your nanny, you must make sure that the employment contract states this clearly.

The ACC Employment Levy

It will be up to you to make sure that your home is a safe environment for your nanny to work in.

The Accident Compensation Corporation (ACC) is a government organisation. It manages New Zealand’s accident compensation scheme and also decides on claims.

We often now use ACC in a general sense to refer to the entire scheme and the compensation a person might get under it. Costs covered under the scheme include:

• Medical and other treatment
• Loss of income
• Social rehabilitation aimed at restoring independence
• Vocational rehabilitation to get people back to work
• Lump sums for permanent disabilities

ACC will provide cover for you or your nanny if there's an accidental injury at work. The levies will go towards treatment and getting your nanny back to work as fast as possible. The amount you will pay will depend on how much you are paying your nanny.

Employers shoulder part of the burden of paying for ACC. If they do not pay ACC they can be liable for significant penalties. As part of our nanny payroll service, Pay The Nanny will charge an ACC levy of 1.5 percent.

This levy includes our ACC processing fee. When you receive your annual ACC invoice, we’ll pay it directly on your behalf.

The Risks and Pitfalls of DIY Payslips and Tax Returns

If you’re not a DIY expert around the house, the worst that might happen is a wonky tile or a leaky tap. When it comes to nanny payroll and tax issues, the devil is in the detail and the consequences of not getting something right can be very serious indeed.

If you’re thinking of paying your nanny cash under the table, please don’t. Doing so puts both yourself and your family at risk. You could face a hefty fine, a criminal record and further penalties related to the tax owing. It’s not worth it.

It’s Too Easy to Slip Up

The difficulty of doing things yourself is that if you’re not careful you could take your eye off the ball and make a costly error. Paying a nanny accurately is not a luxury, it’s a legal requirement.

It’s all too easy to slip up on the latest guidance or rules changes made by the IRD. Doing things yourself means you’ll need to:

• Track leave and overtime entitlements
• Pay taxes, KiwiSaver and ACC

If you’re not used to these issues, dealing with them can feel like a full-time job. It’s also human nature to prioritise. That means getting hungry kids their next meal rather than focusing on your KiwiSaver contributions.

A Case in Point

Paying employees like nannies is serious stuff and the IRD comes down hard on employers who do not meet their obligations. There are plenty of examples of this.

“Every employer has to meet their obligations under the country’s employment law. There can be no excuses,” said one of New Zealand’s Labour Inspectorate Manager following a serious case of an employment breach.

Clearly, there are plenty of well-intentioned families who simply do not have the time or expertise to ensure all their “T's” get crossed and “I’s” dotted.

Sign Up and Sort it!

We offer an end-to-end service to cover you in all areas of tax-related compliance. We know employment obligations can feel complicated for busy parents. They’re just one more thing families could do without, but, for us, dealing with them is second nature. It’s what we do day-in-day-out.

We can even offer an employment contract template. That means you can start the formal relationship you’ll have with your nanny on the best possible terms. A written contract with your nanny is mandatory.

Team up with Pay The Nanny and you’ll become part of a well-oiled machine that takes care of all your nanny tax and payroll obligations.

Join the hundreds of other families who’ve discovered how to Pay The Nanny the simplest way. Sign up here and join Pay The Nanny right now.