Employing a Nanny or Au Pair: The UK Household Employer PAYE Guide 2026/27
How to set up as a household employer, run PAYE for a nanny or au pair, meet National Living Wage rules and handle pension auto-enrolment duties in 2026/27.
You Are an Employer, Not Just a Parent Hiring Help
When a family employs a nanny directly -- setting their hours, duties, and working relationship -- HMRC treats the family as a household employer with essentially the same legal obligations as any small business employer. This surprises many parents, who assume paying a nanny is a simple private arrangement. In reality, "nanny tax" covers a genuine set of statutory duties: PAYE registration, payroll deductions, employer National Insurance, and potentially pension auto-enrolment.
Nannies are very rarely genuinely self-employed, because the family typically controls their hours, tasks, and working location to a degree that HMRC's employment status tests point firmly towards employment. Treating a nanny as self-employed when they are really an employee risks significant backdated tax and National Insurance liabilities for the family.
Registering as an Employer
If you pay your nanny £125 per week or more (the 2026/27 Lower Earnings Limit) -- or any amount if they have another job or receive certain benefits -- you must register as an employer with HMRC before the first payday. Registration gives you a PAYE reference and an Accounts Office reference, which you use to report pay and pay over deductions each month.
Most families use a specialist nanny payroll agency rather than running payroll themselves. These services typically handle registration, monthly payslips, Real Time Information (RTI) submissions to HMRC on or before each payday, and year-end reporting, for a modest fixed monthly fee.
National Minimum and Living Wage
Nannies are entitled to at least the National Minimum Wage for their age, and the National Living Wage of £12.71 per hour from April 2026 if aged 23 or over. This applies to all hours actually worked, including additional babysitting hours if these form part of the employment arrangement. Live-in nannies have specific rules around what counts as working time versus personal time, and any accommodation offset against wages is capped under the accommodation offset rules -- families should check the current offset rate rather than assuming free housing can simply be deducted from wages without limit.
| Pay element | 2026/27 position |
|---|---|
| National Living Wage (23+) | £12.71 per hour minimum |
| PAYE registration trigger | £125 per week (Lower Earnings Limit) |
| Employer NI threshold | £5,000 per year (secondary threshold) |
| Employer NI rate | 15% above the threshold |
Income Tax and National Insurance Deductions
As a household employer, you must:
- Deduct Income Tax from the nanny's pay using their tax code, in the same way as any employer
- Deduct employee National Insurance at 8% on earnings between the Primary Threshold and Upper Earnings Limit, and 2% above the Upper Earnings Limit
- Pay Employer National Insurance at 15% on earnings above the £5,000 secondary threshold
- Submit RTI reports to HMRC on or before each payday
- Pay over the deducted tax and National Insurance to HMRC, usually monthly or quarterly
Take-Home Pay Calculator
Calculate your net salary after income tax, National Insurance and student loan deductions.
Estimate your nanny's take-home payPension Auto-Enrolment for Household Employers
Household employers are subject to the same automatic enrolment duties as any other employer under the Pensions Act 2008. If your nanny is aged between 22 and State Pension age and earns above the automatic enrolment earnings trigger, you must assess them for a workplace pension, enrol them if eligible, and make employer pension contributions alongside their own contributions.
Household employers must also complete a declaration of compliance with The Pensions Regulator confirming they have met their duties, even where the nanny opts out or earns below the trigger and only qualifies for the right to opt in. Nanny payroll agencies typically manage this process as part of their standard service, as the rules and re-enrolment cycle (every three years) can otherwise be easy to miss.
Au Pairs: A Different Arrangement
Au pairs are generally treated differently from nannies because the traditional au pair arrangement involves board, lodging, and a modest weekly allowance ("pocket money") in exchange for helping with childcare and light household duties as part of a cultural exchange, rather than a conventional wage for a defined job. Many au pair arrangements fall below the thresholds that would trigger PAYE registration.
However, families should not assume this is automatic. If the value of accommodation, food and any cash allowance combined pushes the au pair's total remuneration to a level that would trigger PAYE for an equivalent nanny, or if the working arrangement in practice looks more like conventional employment (fixed hours, defined duties, limited cultural exchange element), HMRC could still expect PAYE to apply. Each arrangement should be assessed on its own facts, and families should keep clear written agreements setting out hours, duties, and the value of board and lodging provided.
Holiday Pay and Sick Pay
Employed nannies are entitled to statutory paid holiday of 5.6 weeks per year (pro-rated for part-time hours), and to Statutory Sick Pay if they meet the qualifying conditions, including average weekly earnings at or above the Lower Earnings Limit. These entitlements should be documented in a written employment contract, which is a legal requirement for any employee working more than one month.
Practical Next Steps
- Agree a written contract of employment setting out hours, pay, holiday and notice terms
- Register as an employer with HMRC (or via a nanny payroll agency) before the first payday
- Set up PAYE, and confirm whether pension auto-enrolment duties apply
- Run payroll each pay period, issuing payslips and submitting RTI reports
- Keep records of pay, hours and deductions for at least three years
Sources
- gov.uk: Become an employer
- gov.uk: National Minimum Wage and National Living Wage rates
- gov.uk: Workplace pensions: automatic enrolment
- HMRC: PAYE for employers
Frequently asked questions
Do I need to run PAYE if I employ a nanny?
Yes, if you pay your nanny £125 or more per week (the 2026/27 Lower Earnings Limit) or they have another job, you must register as an employer with HMRC and operate PAYE, deducting Income Tax and National Insurance and reporting pay to HMRC in real time, in the same way any other employer does.
How do I register as a household employer?
You register online with HMRC as an employer, which gives you a PAYE reference and Accounts Office reference. Many parents use a specialist nanny payroll service to handle registration, payslips and Real Time Information submissions, since running payroll correctly requires ongoing monthly compliance.
Do nannies get the National Living Wage?
Yes. Nannies aged 23 and over must be paid at least the National Living Wage of £12.71 per hour from April 2026, and younger nannies must receive the appropriate National Minimum Wage rate for their age band. This applies to all hours worked, including any live-in arrangements, though deductions for accommodation have specific offset rules.
Do I need to pay Employer National Insurance for a nanny?
Yes, if you pay your nanny above the secondary threshold of £5,000 a year, you must pay Employer National Insurance at 15% on earnings above that threshold, in addition to deducting the nanny's own employee National Insurance and Income Tax from their pay.
Do household employers have to do pension auto-enrolment?
Yes, in principle. If your nanny meets the eligibility criteria (aged 22 to State Pension age, earning above the earnings trigger), you have the same legal duties as any employer to assess, enrol and contribute to a workplace pension, and must complete a declaration of compliance with The Pensions Regulator.
Are au pairs subject to the same PAYE rules as nannies?
Au pairs are usually treated differently because they typically receive board, lodging and a modest weekly 'pocket money' allowance rather than a full salary, often falling below the threshold requiring PAYE. However, if payments (including a reasonable value for board and lodging) push total remuneration above the relevant thresholds, PAYE obligations can still apply, so each arrangement should be assessed individually.
What is 'nanny tax' and why does it matter?
'Nanny tax' is the informal term for the PAYE, National Insurance and pension obligations that come with employing a nanny directly. Some families mistakenly assume a nanny can be self-employed and handle their own tax, but this is very rarely correct given the level of control a family typically has over a nanny's hours and duties -- HMRC is likely to view most nannies as employees.
What happens if I do not register as an employer?
Failing to register and operate PAYE correctly can result in HMRC penalties, backdated tax and National Insurance liabilities, and interest charges. It can also leave the family without proper records if a dispute arises with the nanny over pay, holiday or notice.
Do nannies get statutory sick pay and holiday pay?
Yes. As employees, nannies are entitled to Statutory Sick Pay if they meet the qualifying conditions, and to statutory paid holiday entitlement (5.6 weeks per year for a full-time nanny, pro-rated for part-time hours), which should be built into the employment contract and payroll calculations.
Can I use a nanny payroll agency instead of doing it myself?
Yes, and most families do. Specialist nanny payroll providers handle HMRC registration, monthly payslips, Real Time Information submissions, pension auto-enrolment assessments, and year-end reporting for a modest fixed fee, significantly reducing the administrative burden on the employing family.
Try the calculators
Take-Home Pay Calculator
Calculate your net salary after income tax, National Insurance and student loan deductions.
National Insurance Calculator
Calculate your National Insurance contributions for 2025/26.
Auto-Enrolment Shortfall Calculator
See if your pension auto-enrolment contributions are on track for retirement — or how much more you need to save.
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