Household budgets are under pressure from rising inflation and energy bills, and many people are looking to reduce outgoings wherever they can. Childcare is an essential outgoing; it’s not something that can be easily reduced or cut from the household budget, and moving children from one environment to another in a bid to save on fees is far from ideal.

There’s a shortage of nursery places nationwide and even if parents can secure a place, the average nursery fees of £7,212 a year for a child under the age of two can be a considerable burden.

Many parents find they’re in a double bind as statutory maternity pay stops after 39 weeks of leave, which puts pressure on mums to return to work, yet childcare is so expensive it doesn’t always make financial sense for some parents to work as many hours as they would like.

What’s the best kind of childcare?

There’s no one-size-fits-all ‘best’ or ‘most affordable’ option with childcare, because every family will need their kids cared for on different days and varying hours. In an ideal world children would be looked after in the environment that suits them best, but realistically parents need to take into account a range of factors when making the decision, including their working hours, affordability, location of childcare and their child’s needs.

After crunching the numbers for the different options – nurseries, playgroups or local childminders – some parents find the cost and practical benefits of hiring a nanny stack up well by comparison.

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How much does a nanny cost?

The annual Nanny Salary Index pins the average cost of a live-out nanny working 50 hours per week outside London as £12.52 per hour, or £2,713 per month.

These figures vary by region and are higher in London, where the average rate is £15.31 per hour or £3,317 per month.

Can a nanny be cost-effective?

Because a nanny cares for your children in your own home, the hassle of travelling to a nursery for drop-offs and pick-ups and then onto work is removed. This could reduce car costs considerably for some parents, particularly as petrol prices have risen to near record highs and it now costs over £100 to fill up the tank on the average family car.

With a nanny you can specify the hours that your children need looking after based on your own schedule, rather than typical 8am-5pm hours that many nurseries open for. This can remove the ‘late collection’ fees that some parents accumulate when their commute or working hours are so prone to disruption that timely arrivals at the nursery are difficult.

With a nanny at home, parents can leave food for the children rather than pay for meals at nurseries, which are not included in the government’s up to 30-hours of free childcare scheme. Nursery meal plans can cost around £2-£5 a day and so feeding children at home could be a more cost-effective way of managing the family food budget.

Parents with two or more young children often find hiring a nanny works out cheaper than paying private nursery fees for all of them. Meanwhile, families with children of different ages may find it simpler to have one person who can look after a toddler during the day, collect their sibling from primary school in the afternoon and be there when an older child arrives home too.

What to think about before hiring a nanny

The days of informally paying nannies with cash in hand are long gone – the system is more formal now to protect your family and childcare workers. Nannies are generally not considered to be self-employed, unlike gardeners or even childminders. Instead, parents are typically classed as employers and are legally responsible for nannies’ taxes. This is still the case when you find a nanny through a specialist agency; the agencies will vet nannies but as a parent, you are the employer.

Nannies differ from childminders, who are normally self-employed, because childminders often have a range of clients (different families) and can choose the hours they work in their own home. Nannies usually work for one or two families, at the hours they require, and must do the tasks the parents need them to – they cannot pick and choose their work.

Parents who take on a nanny have a number of things to consider in terms of admin and additional costs, regardless of whether the nanny is live-in or live-out.

Pay

It’s standard for nannies to state their hourly pay as a net figure – without tax. This is the amount that your nanny expects to take home after tax. This applies to adverts at nanny agencies and private advertisements, perhaps because it makes the hourly cost of hiring a nanny seem lower and more appealing.

To work out the real cost that you will pay as their employer (the gross cost), you must ‘gross up’ by adding on the tax that the nanny, your employee, must pay on top. There are websites that help you find this, such as Stafftax.

This applies whether you’re browsing advertisements for nannies or advertising a position in your household. If you state you are looking for childcare at £10 per hour, for example, be clear that this is a net figure without tax.

Bear in mind that tax bands can change annually so you must keep on top of this each tax year.

There are agencies that have sprung up to manage payroll and tax matters on behalf of parents, such as Nannytax or Nannypaye. Using one can remove your administrative burden and provide the reassurance that everything is being done correctly, though of course, they charge a fee for their services.

Pension

As an employer you will need to offer your nanny a pension if they are aged 22 years old or over and earn more than £10,000 from you. If they decide they do want a pension, you must make contributions on their behalf and set up a pension scheme for them if they do not already have one.

NEST may be helpful if you are looking for a pension scheme. It’s a pension scheme set up by the government which small employers can enrol workers into, at no cost to the employer.

Other deductions

As an employer you are legally liable for employees’ national insurance contributions, so you must calculate these and ensure they are paid.

Nannies may have student loan repayments which they are legally obliged to make, so this is another consideration.

Going on holiday

Like all employees, nannies are entitled to paid holiday leave. How much you offer should be specified in the contract that you draw up at the outset, but you will have to comply with the legal minimum which is 28 days’ paid holiday per year.

You may think your nanny will jump at the chance to join your family on holiday but remember that this is a working arrangement between you as an employer and your employee. A holiday with your family should not count as part of your nanny’s own annual leave entitlement, however much fun they have on the trip.

Nannies are often paid higher rate during periods of travel away from home as it often involves longer hours. Live-out nannies will effectively be changing to be live-in staff during the holiday and this comes with additional stress, so you must accommodate them appropriately. Parents sometimes offer their nanny time off in lieu to compensate for longer than usual working hours.

Crunching the numbers for the full cost of hiring a nanny can seem complex but when parents have done it once, it gets easier. Nannies can be a cost-effective and practical form of childcare for those who can afford it, and the peace of mind of having your children looked after at home can be invaluable.

Annabelle Williams is personal finance specialist at Nutmeg   

Sources:

• https://www.daynurseries.co.uk/advice/childcare-costs-how-much-do-you-pay-in-the-uk

• https://www.nannytax.co.uk/nanny-salary-index

• https://www.rac.co.uk/drive/advice/fuel-watch/

• https://media.rac.co.uk/news/average-cost-of-filling-a-tank-of-petrol-hits-100-pounds-for-the-first-time-rac-reaction-449319