The Ethics and Legalities of Paying a Nanny Under the Table in the UK

When it comes to employing a nanny, the decision to pay them under the table can appear advantageous for immediate cost savings. However, this practice comes with significant risks and ethical concerns. Whether you're a parent considering hiring a nanny in the UK or a nanny yourself looking to navigate the complexities of employment, understanding the legal and financial implications is crucial.

Pros of Paying a Nanny Under the Table

Cost Savings: Paying a nanny under the table allows you to bypass payroll taxes and other employer-related expenses, potentially reducing your overall costs. This can be especially appealing for individuals or families with limited financial resources.

Simplicity: Direct cash payments can streamline transactions and sidestep the administrative complications associated with formal payroll. This can be particularly advantageous for short-term or informal employment arrangements.

Cons of Paying a Nanny Under the Table

Legal Issues: Paying a nanny under the table is illegal in the UK and many other countries. Engaging in such practices can result in hefty fines, penalties, and legal repercussions for both the employer and the nanny. These consequences can severely impact your financial and professional standing.

Lack of Benefits: A legally employed nanny can access various benefits, including unemployment insurance, health insurance, and workers' compensation. Paying a nanny under the table means forfeiting these important protections.

Trust and Accountability: A formal agreement with a legally employed nanny establishes clear expectations and accountability, which can foster a more open and trustworthy relationship. This can be particularly important for long-term employment.

Tax Liability: If discovered, you could face back taxes, penalties, and interest, which could far outweigh any initial savings. The financial burden could be substantial.

Future Employment Issues: Non-compliance can complicate future employment history, making it difficult for nannies to secure other jobs, as they may struggle to prove their past work experience.

Registering a Nanny as Self-Employed

In the UK, if a nanny is registered as self-employed, they can operate under a straightforward contractual arrangement. However, it's important to consider the taxman's perspective. The tax authority may classify a nanny as self-employed only if they work for multiple families, as they would then be considered a contractor. If the nanny exclusively works for one family, the situation can be more complex.

For example, if a nanny is working for more than one family, they can handle their own taxes and National Insurance contributions (NICs) and their pension. Paying them in cash is acceptable as long as they declare their income properly.

A Case Study: My Daughter, a Self-Employed Nanny

My daughter is a self-employed private home-help/cleaner/security guard. Some of her clients, the elderly home-help clients, pay her in cash. However, the commercial cleaning contracts and security work are handled through Pay As You Earn (PAYE).

She could have easily done the home-help work “under the table,” but she chooses to declare it on her annual tax returns. The security and commercial cleaning work were affected by the lockdown but are expected to pick up again. She receives Universal Credit as an additional income source because she has no regular income.

Her clients are elderly and often infirm, and she faces the risk of losing a client at any time. However, only two have passed away, one was a 67-year-old man with diabetes and a heart condition, and the other was an elderly man aged 92. She continues to help his wife, demonstrating the importance of having a reliable and ethical employment arrangement.

Conclusion

While paying a nanny under the table may appear to save money in the short term, the potential legal, financial, and ethical consequences often outweigh the benefits. It is usually advisable to pay nannies legally, ensuring fair treatment and compliance with labor laws. By doing so, you can create a more stable, transparent, and trustworthy employment relationship.