Tips on Creating a Contract for a Nanny

We set out below some tips which should be borne in mind when drawing up a contract.

Fairness
Try to be fair and equitable in the contract terms. This will be one of her first insights into dealing with an employer on a business level and if the contract seems oppressive or one-sided to the nanny, it will get the employer/nanny relationship off to a very bad start. It is very expensive to replace a nanny who leaves because this relationship breaks down!

Ensure contract terms are fully understood
Take some time to go through the contract, term by term, with the nanny and explain what is meant by each clause. Explain why the clause is there and the intention behind each one. This avoids any misunderstandings at a later date.

Net or Gross Pay
Although nannies will always tend to expect any discussion about pay to be in net terms, we would recommend that every effort is made to convert this to a gross salary for the contract. Defining pay in net terms in the contract leaves the employer open to potential risk and a number of circumstances can occur that may cause difficulties. These include such things as a rise in the rate of NI contributions (which would put up the costs of the employer but not affect the nanny at all), a reduction in the nanny's tax free allowances because of unpaid nanny tax from a previous employment and the nanny applying for tax credits. We would recommend that a net salary is discussed at the interviews (if the nanny is happiest with this approach) but that a conversation is had with the nanny to explain that you would prefer to use a gross pay calculation once she starts work. You MUST make it clear to her that once gross pay has been put into the contract, neither of you can talk about pay in net terms again and that any change to the normal working hours or standard pay may well result in a figure different to that worked out on the previous net pay basis. This means that, as long as nothing changes, the nanny will get the amount of net pay agreed at the interview but that the employer is protected if circumstances change. However, if the nanny is not happy to take this approach, we have no difficulty in operating a net pay agreement. In fact, about 75% of our clients continue to operate net pay agreements with no problems. In practice these are often simpler to operate for both the employer and the nanny as the net pay is entirely predictable (under a gross pay agreement net pay will tend to vary by a few pence each month) and can more easily be paid via a standing order from the employer's bank account.
Please note that we can advise employers of the gross equivalent of any net pay figure as part of our service.

Holidays
All employees are entitled to 5.6 weeks paid holiday per year INCLUDING any bank holidays which fall on normal working days(the equivalent of four weeks plus all 8 bank holidays for a five-day-a-week employee). This means that a part-time nanny working three days a week would be entitled to 16.8 days paid holiday INCLUDING any bank holidays which fall on normal working days. This will often work out to a slightly higher figure than the previous allowance of 4 weeks plus bank holidays.
Although an employer is legally entitled to specify the dates of all holidays a nanny takes, the convention is to allow the the nanny to choose two of the weeks and for the employer to choose the remainder. The contract should also specify whether any bank holidays are likely to be regarded as working days or if they will always be treated as holidays. It is also a good idea to specify that during the first year of employment holiday can only be taken once it has been accrued. (e.g. for a nanny working 5 days a week, holiday is accrued at a rate of two and one-third days per month worked). Employers should also note that the contract should specifically state that holiday taken in excess of an employee's entitlement at the date of leaving will deducted from final pay. If this is not specifically mentioned, an employer has no right to make any deduction from the employee's final pay.

Sickness
It is worthwhile trying to strike a balance between financial protection for the employer in the event of serious or long term sickness and fostering a relationship of trust with the nanny. To limit sick pay to Statutory Sick Pay only can cause resentment with the nanny as this would mean that a day off with a cold etc would be unpaid. (SSP only applies from the fourth working day off sick.) This is quite a harsh sanction on a nanny's rate of pay. At the same time, an employer must limit any sick pay paid at normal rates, as long term sickness could prove to be very expensive. Our clients typically tend to pay one or two weeks sick pay at normal rates for any sickness within a 12 month period. If more days than this allowance are taken off sick in any one year then only SSP would be paid. Employers should note that any SSP paid for an extended period will tend to be reclaimable from HM Revenue. The rules are very complex (70 page manual!), but we do all the calculations and reclaims as part of our service.

Copies for both parties
Have two copies of the contract. Both parties should sign both contracts and each should keep a copy.

We have a specimen contract which sets out a basic contract structure and terms. This is available electronically to our clients.