Sure, you can pay a nanny in cash.. But should you? In most cases, no.
The question of how to pay a nanny is very common. It’s completely understandable to be unaware of the different ways to pay a nanny or to be confused about the best method for your arrangement. So let’s go through the options and see what makes the most sense for each situation.
Pay a Nanny Cash in Hand?
Some families choose to pay a nanny in cash (or bank transfer of cash), just like they would for a babysitter. While this is ok for occasional casual work, it’s not the best option for ongoing arrangements. When they receive a cash payment, the nanny can still meet their tax obligations by declaring it on their tax return. So they’re not likely to face any serious repercussions… but you as the parent might.
Parents who pay a nanny in cash without meeting certain obligations can be required to back pay taxes, penalties, Super and/or other costs. This happens if it is determined later that they should have been the nanny’s employer. When a family engages a nanny by paying cash, they’re also not likely to be covered by Worker’s Compensation – something that is risky and could be an issue if your nanny is injured at work.
Engage a Nanny as a Contractor?
Some nannies operate as a sole trader/business, invoicing clients who use their services. This can be a great set up for nannies who work for multiple families or provide specialised services such as short-term newborn care. Like when you pay a nanny cash, paying the invoices from a nanny with their own ABN is a pretty easy way to pay. The bulk of the responsibility, in terms of paperwork and contributing to their tax and Super, is on the nanny.
But what if the nanny is working for your family full-time, or working for a few families with regular hours? They’re unlikely to meet the criteria for operating as a sole trader. You might be surprised to learn that just like if you pay a nanny cash in hand, you might later be required to make additional payments to a nanny you engaged as a contractor if it’s later discovered that you should have been their employer. Additional payments might be required to meet minimum Award wages, or cover the cost of Super contributions.
When you pay a nanny who has set themselves up to work as a sole trader, this means that they are in charge of their work. They set their rates and working conditions, they let clients know when they need time off and when they won’t be able to work or will offer an alternative worker in their place. Before choosing this route, consider if this works for you or whether you need more of a say in the hours the nanny works and what they do during that time.
Employ your nanny yourself or through your own business?
By law, most nannies need to be employees. If you already own a business you might already have the knowledge or staff to set up and manage employees. Be careful though, because there may be different requirements to pay a nanny compared to your other employees. You need to make sure you’re meeting the obligations of the nanny’s employment under the Miscellaneous Award and as a household employee.
If the nanny is your only employee, you’ll have to set everything up to be able to employ them legally. You need to make sure you engage the nanny in a work agreement that meets or exceeds the conditions in the Miscellaneous Award, which may involve consulting a lawyer and/or accountant. You must set yourself up to make PAYG tax contributions on your nanny’s behalf (including using Single Touch Payroll), report their earnings to the ATO, and contribute to the nanny’s Super. You need to provide them with payslips, manage any leave entitlements they have, and ensure they are covered by Worker’s Compensation insurance.
It takes both knowledge and time to manage your nanny’s employment yourself.
Employ your Nanny with the support of a Payroll Service?
Payroll services like NannyPay, who specialise in domestic employment, can be the simplest way to pay a nanny in a way that meets obligations and provides protection for both you and your nanny. The list of things in the previous section? We can handle all of that for you!
We make it easy to do the right thing when employing a nanny on an ongoing basis, so you don’t have to worry about anything. You have all the empowerment of being the employer, and your nanny has all the security of being legally employed, but it’s easy for you both. And affordable too. After an initial sign-on fee it’s only a $57 fee per fortnight for us to take care of everything – from your various payments being made, to all the essential records being kept.