The thought of paying your nanny cash, no questions asked, is one of those lightbulb moments best switched off immediately.

It might appear a simple, no-hassle, not to mention a cheaper, alternative to managing nanny payroll, but it doesn’t take much digging to see how fraught with danger it is.

Paying tax for nannies goes with the territory when you become their employer. Read on to find out why paying your nanny cash should ring alarm bells and about a better way to make nanny payroll headache-free in one fell swoop.

Can I Pay My Nanny Cash?

If you’re doing this to avoid paying taxes, then the short answer is “no” because it’s illegal.

Although technically possible, even if you wanted to pay your nanny cash in a way that was above board, it would be tricky. It would add layers of complexity that would make seamlessly meeting all your responsibilities as an employer far more difficult.

You would still have to ensure you adhered to all your payroll obligations as an employer if you were to pay your nanny in cash. That’s far harder and more time-consuming to do manually than it is if you do it digitally. The use of cash, in general, is in decline across the board.

It could also potentially raise alarm bells at the Inland Revenue Department (IRD). The IRD is always on the lookout for undeclared payments. They see them as the "hidden economy" and they take tax avoidance and cash-in-hand payments very seriously.

If you fail to follow the rules, here are some of the ways the IRD could find out:

• Someone might report you
• You might fall out with your nanny and they might inform on you to the IRD
• The IRD might decide to focus on an "at-risk" industry such as domestic services
• The IRD performs a random audit to check on compliance

Your Professional Relationship With Your Nanny

When you employ a nanny, you will become their employer in almost all circumstances. Employment law is there for a reason. It protects the rights of workers and it provides employers with a set of rules they need to adhere to.

If you break the law by paying your nanny in cash under the table, you’re putting your family at risk. Fines are hefty and a stint in prison could be a disaster with long-term consequences that would affect your future employment and access to credit.

Your Responsibilities When Employing a Nanny

If you employ a nanny, you have to adhere to a bare minimum of employee rights. Your nanny will be due:

• 4 weeks of paid annual leave each year
• 12 public holidays a year
• Up to a year’s parental leave
• 5 days of paid sick leave per year after the first 6 months
• After 6 months, an extra 15 days can get carried over to a maximum of 20 days
• 3 days of paid bereavement leave for certain family members,
• 1 day of paid bereavement leave for non-family members
• Meal breaks in time or compensation
• Paid rest breaks 
• To get paid the current minimum wage
• Overtime paid at minimum wage per hour
• Unpaid leave while on jury duty

After checking your nanny’s right to work in New Zealand, you’ll need to provide them with a contract. It acts as a fundamental and essential reference point. Along with regular hours, leave and overtime, you’ll need to outline the duties you expect them to perform.

As an employer, you’ll need to register with the IRD and get an IRD number. You can register as an employer here. You must ensure your nanny fills in a Tax code declaration IR330 form.

This form will let you know what rate of tax to deduct from their salary along with any other deductions to make such as student loan repayments. If your nanny doesn’t give you a completed IR330, you’ll have to deduct tax at the non-notified rate. This is 45 cents in the dollar plus the ACC earner’s levy.

You’ll need to provide your nanny with payslips. You’ll also have to remember to sort out car insurance should you wish your nanny to drive the kids around or do errands in your car. 

How to Make Nanny Payroll a Walk in the Park

Dealing with the long list of administrative chores that come with hiring a nanny is not for the fainthearted. Wondering if there are ways to avoid all the hassle is understandable, especially if you’re a busy parent who already has their hands more than full.

There is a simple way to make life easier without burying your head in the sand or paying cash under the table. That’s to outsource the admin to a payroll company.

Pay The Nanny takes care of everything for you. We ensure your nanny:

• Gets paid on time and has an accurate payslip
• Has the correct amount of tax deducted from their salary
• Can check their leave, overtime and sick pay entitlements

We will also make sure you are compliant with your Kiwisaver and ACC obligations. We can even supply you with contract templates and advice about working hours.

Payroll Compliance: What’s in It for Your Nanny?

Barely a day goes by without a headline bemoaning the number of unfilled vacancies in New Zealand’s job market. Finding childcare can be fraught with difficulty for parents eager to get to work so that they can pay the bills and put food on the table.

The situation is little better in other parts of the world. Some UK parents, for example, are now resorting to “nanny-poaching” in playgrounds. It’s an example of the desperate lengths some families will go to when there’s a labour shortage in the childcare sector.

When there is a lack of qualified workers like this, those who can work in sectors where there is high demand are in a strong negotiating position. That means they will expect to get paid properly and with all the statutory benefits included.

Nannies tend to see their work as vocational. It is a career they’ve chosen and, like anyone else, they need a strategy for eventualities like retirement and long-term sickness. Kiwisaver and ACC are an integral part of that plan.

If you fail in your duty and avoid making ACC payments, your nanny may face an uncertain future in the event of a serious accident.

Nannies want their employers to treat them fairly and professionally. If parents were to suggest they pay them cash in hand, they’re likely to turn on their heels and find another family who’ll pay them properly.

Applying for Banking Services

Nannies also take out loans and mortgages. To do that they will need evidence that they can make the repayments. That often means being able to produce a set of previous payslips to show potential lenders.

It’s not hard to see then that if you were to pay your nanny cash under the table, life might become more challenging for them. And, there’s the legal risk on top of that too. They would not be complying with their own tax obligations and that could land them in really deep water.

If a nanny were to suggest to you that you should pay them in cash under the table, it should act as a big red flag. You would definitely need to understand why that’s their preferred option and swiftly move on.

Remember too that you might be on good terms to start with but relationships can turn sour. There is always a risk that a nanny who is not getting paid correctly will report their employer to the relevant authority.

So, if you were to pay your nanny cash under the table, you would always have the possibility hanging over your head that you’re putting your family at risk.

The Penalties For Paying a Nanny Cash Under the Table

It is illegal to pay your nanny cash in hand if you are not fulfilling your obligations as their employer. If you failed to withhold tax, then the chances are you would be doing something illegal.

It’s not so much the method of payment that matters. So, when you ask, “Can I pay my nanny cash?” what’s important is compliance with the relevant employment laws. Even if you made payments by bank transfer but paid the incorrect amount and mismanaged the tax component, you would still be in breach of the law.

If you deliberately paid your nanny cash in hand to avoid your obligations as their employer, you could face very serious consequences. Committing tax fraud is a crime that can lead to harsh penalties.

It is a tax crime to conceal cash payments to avoid paying taxes. The penalties can be fines, a criminal conviction and even a prison sentence. Any of these could sink your long-term plans once and for all.

Let Pay the Nanny Take the Strain

Ensuring compliance with relevant employment law doesn’t typically top the list of skills prospective parents expect to arm themselves with. Pay The Nanny can take over managing your nanny payroll including paying taxes for nannies on your behalf.

It’s a simple solution to a complex set of necessary obligations. Get in touch with one of the team today so you can carry on parenting without the headache and worry of tax compliance on nanny payroll day