Congratulations! You found the perfect nanny and the children just love their new grown up friend. The next thing you need to consider is your obligations as an employer, in particular all of the responsibilities you have to make sure you’re paying your nanny correctly.
Not withholding tax
When you make payments to employees, you need to withhold an amount from the payment and send it to the Australian Taxation Office (ATO). This is called PAYG withholding, and it’s intended to prevent workers from having a large amount of tax to pay at the end of the financial year. When you are an employer expected to withhold tax, you need to make sure that:
- You’re registered for PAYG withholding
- report the amounts on your activity statements
- provide PAYG withholding payment summaries to employees
- lodge a PAYG withholding annual report.
If you are not doing these things, you are contravening the law, and could find yourself in trouble with the ATO, facing a penalty.
Not providing a payslip
It’s against the law in Australia not to provide employees with a payslip within one day of them receiving their pay. Under the Fair Work Act, a payslip must include the following information:
- the amount of pay, both gross (before tax) and net (after tax);
- the date of receiving the pay;
- the pay period;
- any loading, bonuses or penalty rate entitlements;
- deductions;
- superannuation contributions including the name of the super fund;
- the employer’s name and ABN if they have one; and
- the employee’s name.
The payslip provides an import record of the transaction between your nanny and you, as the employer. And it can be referred back to if there are any disputes. However, there are other reasons why it’s important – payslips are often required by banks as proof of salary if you require a loan, or a credit card.
Not paying Super
As an employer, if you pay an employee $450 or more before tax in a calendar month, you have to pay super on top of wages.
This is called the super guarantee. It is currently set at 9.5% of an employee’s ordinary time earnings. It must be paid at least four times a year (although it is easiest to do it every pay cycle) and must be reported to the ATO.
If you don’t pay the SG on time, you may have to pay a super guarantee charge.
Not taking out Workers Compensation Insurance / Work Cover
Workers compensation is a form of insurance payment to employees if they are injured at work or become sick due to their work.
Workers compensation includes payments to employees to cover their:
- wages while they’re not fit for work
- medical expenses and rehabilitation.
- Employers in each state or territory have to take out workers compensation insurance to cover themselves and their employees.
Work Cover differs across each State and Territory in Australia. But it makes perfect sense to have this cover to ensure that both you and your employee are adequately protected.
Paying cash
Paying your nanny cash is perfectly ok, so long as all the tax requirements and super requirements are also met, and there is a payslip detailing the wages and deductions.
However, paying ‘cash in hand’ is illegal. And it’s unfair to the nanny who will have no way to prove their income should they need to get a loan or credit.
It’s important to distinguish between a babysitter and a nanny on contract – a babysitter will only be employed occasionally for a short-time period and a nanny who will be a regular provider of services to you and your family.
Avoiding the pitfalls
The simplest way to avoid making these kinds of mistakes, to meet both your moral obligation and your financial obligation to your nanny is to engage a professional payroll service.
CarePayCo is a dedicated nanny payroll specialist. We can take care of all the details for you, so that all obligations are met accurately. This means that both you and your nanny can be assured that taxes, super, holiday loadings, sick leave and holiday leave entitlements are all paid according to the employment contract you have in place, and there will be no discrepancies or disagreements about wages, which can potentially end up damaging the relationship you have with the nanny, or cause you hassles with the ATO.
If you want all your payroll problems sorted, contact us for more information.
