Set up a fair and legal offer where everybody wins.
Have the right conversations, early.
Let’s do step two. Great, you’ve found the right nanny. Let’s set up an official offer. This module is going to show you how to employ your nanny and navigate the negotiation stage to establish a working arrangement where everybody wins. Understanding the arrangement means everyone puts their cards on the table from day one, which avoids awkward conversations later.
You have two options for payment
Employee vs contractor
For some families employment is easy, and for others it’s completely new territory. The nanny industry is hard to navigate and unless you run a business, employing someone domestically takes a lot of time and admin. It’s a common misconception that any nanny can work under an Australian Business number (ABN). In fact, most nannies should be employed. They can only be a contractor (ABN holder) if they meet the Australian Tax Office’s (ATO) very specific criteria.
If a nanny seems like an employee, they probably are. Especially if they are just working for your family. It’s important to do your homework because in the event that the ATO or FWO deem the arrangement to be employed, you will be liable, not the nanny.
When it comes to payment, you have two options.
Scenario: The nanny is employed under conditions that meet the relevant award minimums. As the employer, you withhold tax from the nanny’s wage and pay it to the ATO, make superannuation contributions to the employee’s chosen fund, provide payslips, provide workers compensation insurance, and offer payroll reporting via Single Touch Payroll to the ATO.
Average hourly rate for a professional: $27 + employment costs
Scenario: The nanny is self-employed, operating under their ABN, and invoicing the family for the job they do. The self-employed nanny processes their own instalments of tax and Super, which often makes their rate higher. A contractor nanny requires less work from the family but they are more rare. The nanny must meet the ATO’s criteria to become a contractor.
Average hourly rate for a professional: $33
Please note: This module will not specify if your nanny can be a contractor. If you do head down the contractor path (some nannies will insist on it) you should call the ATO directly to confirm if your arrangement qualifies.
The ATO is yet to make a definitive ruling on whether or not nannies can be contractors, so if you decide to engage with a nanny as a sole trader it’s important to consider if they meet the ATO’s general criteria. To be a contractor a nanny must be operating as a small business, offering nanny services for multiple families throughout the financial year. A good rule of thumb is that if your role is bringing in 80% or more of their income, the nanny should be employed.
Here are some contractor scenarios that might be approved by the ATO:
- A nanny servicing 3 – 4 families a week, spending 1 – 2 days with each of their families. This nanny has a website, Facebook page, and a network of nannies that they use as their team to fill in for any additional bookings. They are actively marketing and advertising their brand and services. Please note: This doesn’t include working for 3 – 4 families across the year consecutively. Once again if the nanny is only working with you and one other family at any given time, confirm with the ATO if you should employ.
- A nanny offering professional consulting services that support families for temporary arrangements. The consulting provides parenting support (sleep training, behavioural) based on different packages they offer under their business. This nanny has a website, Facebook page, and a network of nannies that they use as their team to fill in for any additional bookings. They are actively marketing and advertising their brand. Once the service is finished, the nanny will service the next booking, collecting multiple sources of income from their temporary services throughout the financial year.
Tools: You can also consider the ATO’s employee/contractor decision tool to determine an answer but it’s not as secure as getting direct approval straight from the ATO.
Consider your experts
We can’t offer legal or official advice here, so regardless of the path you head down we recommend calling your experts to get an understanding of what your obligations are.
Accounting + financial advice: Regardless of the pay set up, talk to your Accountant. Nannies are not tax deductible so it’s important to consider how the payroll is going to affect your finances (especially if you own your own business and want to employ the nanny within that structure).
Payroll expert: Make sure you set up any DIY payroll correctly by consulting a Payroll Expert. This could be anyone from a payroll company to employment advisors. They will be able to process the pay for you for a fee or advise you on how you can do it on your own, ongoing.
Australian Tax Office (ATO): The ATO can support you in understanding your obligations for payroll, tax contributions, and employee/contractor engagement.
Fair Work Ombudsman (FWO): The body that sets the ground rules for employment to protect employees. The FWO determines industry award rates and classifies the minimum standards for employers to adhere to.
How to employ your nanny
Employing your nanny
Definition: You are the domestic employer of the nanny who is the employee.
Employer obligations: Below is a list of admin involved with employing someone:
- Entering into a legal and fair working arrangement with the Nanny;
- Where relevant, paying the Nanny’s superannuation to their chosen fund (there are some exceptions);
- Providing the Nanny with Workers Compensation insurance;
- Adhering to any obligations to withhold and pay tax to the ATO;
- Reporting tax and super to the ATO via Single Touch Payroll;
- Providing the nanny with payslips.
Lauren's Hot Tip!
“I can’t say that setting up private domestic employment on your own is easy (because it’s definitely not), so we recommend you engage with a payroll company to do the admin for you. They often charge per pay run and all you have to do then is pay an invoice, but you are still the legal employer of the nanny.
If you don’t want to be an employer, you’ll need to hire an agency to employ for you at a higher cost.”
Various employment scenarios for nannies and families
- You employ your nanny through your own company/business;
- You employ the nanny but pay a payroll company to manage payments;
- You employ your nanny as a domestic employee privately, and pay for a payroll expert to help you set it up;
- An agency employs the nanny for you.
Set up a payroll
Payroll support services will support you with admin and processing. Where relevant they will contribute to your nanny’s chosen super fund, set up a worker’s compensation insurance policy for you, and adhere to any obligations that you have to withhold and pay your nanny’s tax.
Payroll services will often charge an initial fee to set up all the moving parts and from there will charge a processing fee per pay run.
Who can help?
Nanny Payroll company
Build a contract or work agreement
It’s important to get the work agreement in writing. Formal agreements may feel overwhelming but they’re a great tool to clarify the arrangement, establishing standards expected for a domestic professional.
Some families and nannies just exchange the agreement in emails to refer to later if required, and for many this works. We recommend creating a work agreement or contract.
Who can help?
Free templates online
Fair Work Australia
Below are our chosen partners for payroll and contract template services. Fill out a form to get started and redeem your $10 discount!
For payroll, we recommend talking to the team at Nanny Pay. Emma is a registered tax agent who knows the nanny industry well. Nanny Pay has a range of payroll solutions for parents employing their nanny in the home. Using a payroll company removes the complication of trying to do it all yourself.
Need a contract template? We can help. We worked with nannies and lawyers to customise contract templates for casual, part-time, and full-time employment. Simply fill out the form below with the finer details of the arrangement and receive your first template draft.
Don't want to be an employer?
Nanager can be the employer for you.
You’ve found the perfect nanny, so let’s make it official
Building and presenting the right offer can make or break a new arrangement. This section will help you prepare a comprehensive offer and set you up to have the right conversations early. Talking about money can be awkward but it’s amazing how these conversations strengthen a relationship. A good negotiation gets everyone on the same page, and sets up honest and clear communication from day one.
Why are negotiations important?
- Negotiations are a two way street – both sides need to feel considered and heard.
- It’s easier earlier – a conversation about cancellations is much easier to have before there is a cancellation.
- It sets up strong foundations – good negotiations build mutual respect and trust from the start.
1: Prepare the offer
The downloads below include a list of topics and points that I always encourage both parties to consider before starting an arrangement. Trust me, clarifying these things before the arrangement starts is much easier than working it out once they come up.
Click to download the negotiation cheat sheet based on your arrangement. From there, go through the list and establish the preferences for your family before you discuss it all with your nanny. This document is a good tool to have during the conversation and you might want to email a list of questions from it to the nanny so they can prepare too. Remember to consider along the way where you would be willing to compromise.
2: Present the offer
When you are ready with an offer, send it in writing, and from there set up a phone or face to face conversation so that both parties can negotiate. These conversations can be awkward but setting these boundaries can be powerful in the long run. Remember how hard it can be for your nanny to represent themselves. I personally respect nannies who present their preferences, as it shows professionalism, experience, and confidence.
3: Get it in writing
Once both parties decide on the arrangement, we recommend that you get the important parts in writing. I strongly recommend using a work agreement or building it into a legal contract. Boss Nanny offers customised nanny templates or you could look for a free one online.