What will the changes to Employer’s National Insurance mean for parents employing a Nanny?

What is happening?
The Autumn Budget of November 2024 announced a big change to the rates that all Employers pay their National Insurance (the amount they pay on top of what is deducted from their employee’s pay).  Sadly, this will impact employers of domestic staff significantly due to them not being eligible for the Employment Allowance which reduces the Employer’s National Insurance bill each month for many employers who run businesses or charities.

 

What are the changes?
Currently, Employers pay NI on their employee’s pay over £758 per month / £175 per week at a rate of 13.8%.
From April 6th 2025, the threshold reduces to £417 per month / £96 per week and the rate increases to 15%.

 

How much will it cost?
For context, if we take the salary of a part-time Nanny who is paid £750 per month, currently there is no Employer NI due on that amount.
From April, the Employer will pay 15% on the amount over £417 each month creating a new Employer cost of £49.95 each month, increasing the annual cost by almost £600.
Taking the example of an annual salary of a full-time Nanny of £25,000 (£2,083.33 per month), the Employer’s NI will increase from £182.89 to £249.95.
Again, a significant increase in costs.

 

What can be done to help lower your costs as a Nanny Employer?
Without the help from the Employment Allowance, there is no way of reducing the additional National Insurance costs.
However, there are ways parents can reduce their total costs of hiring a Nanny such as:

  • ALWAYS agree your Nanny’s salary and hourly rate on a gross pay basis, not on a net pay / take home arrangement.  The costs involved not only have to cover the Nanny’s salary/basic pay but everything else that is usually deducted from the Nanny’s pay – tax (tax, national insurance, pension, student loan, attachment of earnings – everything is up to the Employer to cover!)

 

  • Employ an Ofsted registered Nanny who is eligible to register as an approved childcare provider for the Tax Free Childcare scheme.
    Parents are then able to make payments to a Tax Free Childcare account which the government then tops up by 20% (to a maximum addition of £2,000 per year, or £4,000 if the child is disabled).
    The funds in the account can then be used towards paying your Ofsted registered Nanny and can also be used to pay the PAYE (tax and national insurance due) to HMRC.

 

  • Nanny share – sharing your Nanny with another family (either so that your child/children are cared for at the same time at one home or separately at each home) is becoming more popular.  Each family is classed as a separate Employer, therefore each has the NI threshold allocation of £417 per month, cutting the NI cost.
    Be warned though – as separate Employers, each family still has to meet their legal Employer responsibilities when it come to pensions, holiday entitlement etc.  It’s not something to jump into without giving it plenty of research, consideration and some serious calculations.