2025 Pay & Tax Changes Explained – What It Means for Your Nanny

As we move into 2025, it's more important than ever to stay informed about the latest pay and tax changes that may affect your nanny’s compensation. These adjustments could impact how much you pay and your responsibilities as an employer, so it's essential to understand the new regulations. At Kindred, we’re committed to helping families navigate these changes smoothly. Whether you’re employing a live-in or live-out nanny, we want to ensure that you’re fully equipped to handle these updates with ease. This blog will break down the key changes, explain what they mean for you as an employer, and offer tips on staying compliant.

Minimum Wage Rates: What’s Changing?

Late last year, the UK government announced an increase to the national minimum wage (NMW) rates, which will come into effect on April 1st, 2025. These changes are part of an annual review, designed to keep up with inflation and the rising cost of living. For families employing a nanny, it’s crucial to understand these changes to ensure that you’re paying your nanny the correct amount.

As of April 1st, the national minimum wage for nannies will rise as follows:

Nannies over the age of 21: The hourly rate will increase from £11.44 to £12.21 gross per hour.
Nannies aged 18–20: The hourly rate will rise from £8.60 to £10.00 gross per hour.

These increases reflect the government’s ongoing commitment to improving pay for workers across the country, particularly in light of increasing living costs and inflation. For many families, this will mean a higher cost of employing a nanny, but it’s important to ensure that these changes are implemented to avoid falling foul of legal requirements.

If you’re employing a nanny who lives in your home, there is an additional consideration: accommodation offsets.

Accommodation Offset for Live-In Nannies

Families with live-in nannies will be able to offset part of the nanny’s salary by deducting an accommodation allowance. This allowance has been adjusted to keep pace with inflation and the cost of housing. From April 1st, 2025, the accommodation offset will increase from £69.93 to £74.62 per week. This means that for live-in nannies, you can deduct up to this amount from their gross salary to cover the cost of accommodation.

This offset is a helpful way for families to reduce their overall costs while still complying with minimum wage regulations. However, it’s important to remember that the salary before the offset must still meet or exceed the minimum wage for the relevant age group. Even with the accommodation offset, your nanny’s pay must meet the required hourly or annual minimum wage, depending on their age and hours worked.

The Impact of National Insurance Contributions

In addition to changes in minimum wage rates, national insurance contributions (NICs) for employers will also see an adjustment starting on April 1st, 2025. Currently, employers pay NICs at a rate of 13.8% for earnings over the threshold of £9,100 per year. However, from April, this rate will increase to 15%, and the threshold will drop to £5,000 per year.

This change means that many families will need to pay more in employer national insurance contributions for their nannies, especially if their nanny earns over the new threshold. The NICs are calculated based on the nanny’s total earnings, and the higher contribution rate will affect both the nanny’s net pay and the employer’s total cost.

To break it down further, if your nanny earns more than £5,000 per year, you’ll now pay an additional 1.2% in NICs on their salary, which could add up to a significant amount depending on their hourly rate and the number of hours they work. This change underscores the importance of understanding your obligations as an employer and working with a payroll provider who can help you stay compliant.

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How Will These Changes Affect You as an Employer?

As a nanny employer, it’s essential to stay informed about changes in pay, tax, and national insurance rules to ensure you’re meeting legal obligations and avoiding any costly mistakes. These changes will likely increase your payroll costs, especially if your nanny’s salary is close to the minimum wage. However, staying on top of these changes will not only help you comply with the law but also demonstrate that you value your nanny’s hard work and commitment.

Here are a few tips for navigating these changes:

Communicate with Your Payroll Provider: If you use a payroll provider to manage your nanny’s pay, reach out to them to discuss the upcoming changes. They will be able to help you adjust their pay rates, national insurance contributions, and tax calculations to ensure everything is in order.
Update Salary Agreements: If you have a contract with your nanny, make sure to update it with the new pay rates and any changes to terms like working hours or accommodation offsets. This will help avoid any confusion or disputes later on.
Budget for the Changes: With the increase in both minimum wage rates and national insurance contributions, your overall payroll costs will rise. Make sure to review your budget to account for these increases and plan accordingly.
Consider Benefits and Perks: If you’re feeling the financial pressure of these changes, consider offering additional benefits or perks to your nanny, such as flexible working hours, extra paid leave, or contributions to pension schemes. These can be attractive to nannies and help to retain quality staff in the long term.

What if You’re Unsure About Your Responsibilities?

We understand that these changes can be overwhelming, especially if you’re unsure how they apply to your specific situation. It’s important to take action early to ensure compliance and avoid any penalties. If you’re unsure whether your nanny will be affected by the new minimum wage rates or national insurance contributions, we recommend contacting a professional payroll provider for guidance.

One payroll provider we highly recommend is NannyTax. Their team of experts is well-versed in the specific regulations surrounding nanny pay and national insurance, and they can assist with ensuring your nanny’s pay is correct and compliant. Additionally, NannyTax offers a variety of helpful resources on their website, including calculators and guides, to help you better understand the impact of these changes.

If you would like to be referred to NannyTax through Kindred and receive a discounted rate, please don’t hesitate to contact one of our consultants. We are always happy to assist and ensure you have the support you need.

Final Thoughts: Stay Informed and Stay Compliant

In summary, the pay and tax changes coming into effect on April 1st, 2025, will have an impact on your nanny’s salary and the national insurance contributions you are required to pay. By understanding the changes and working with a payroll provider, you can ensure that your nanny is fairly compensated and that you remain compliant with all regulations.

At Kindred, we are committed to helping families navigate these changes with ease. If you have any questions or concerns, don’t hesitate to reach out. Together, we can make sure your nanny’s pay reflects the hard work they do and that your family remains compliant with the latest regulations.