Article
5 Risks of Paying Your Nanny Cash
By Mark Hudson · 27 June, 2021
The 5 Biggest Risks of Paying Your Nanny in Cash
The bottom line is this: ignorance is no defence. You might think that hiring a nanny falls under some sort of grey area for tax purposes. It does not. Paying your nanny cash under the table is a strategy fraught with danger.
The Australian Taxation Office (ATO) does not look kindly on those who flout the law in this way. You might need more than a spoonful of sugar to help the medicine go down should the ATO catch up with you.
Read on to find out the top 5 risks if you pay your nanny in cash.
1. Paying Your Nanny Cash Under the Table Is Non-Compliant
If you’re non-compliant, it means you’re failing or refusing to comply with something, such as a rule or regulation. It is for you to understand what those rules or regulations are. That includes those around nanny pay.
Nannies are like any other employees. It is up to you to treat them as one. That means you have to comply with these three key requirements:
- Register with the ATO as an employer
- Have a contract with your nanny
- Pay your nanny taxes
If you fail to follow the rules, there are many ways the ATO is likely to find out. Here are some of them:
- Someone might report you
- You might fall out with your nanny and they might inform on you to the ATO
- The ATO might decide to focus on an "at risk" industry such as domestic services
- The ATO performs a random audit to check on compliance
The ATO refers to undeclared payments as the "hidden economy". It's a serious issue because those paid in this way are not sharing the country’s tax burden. That means those people who do pay tax may end up paying more.
Remember that the IRD has a link on its website for people to confidentially report those they suspect of flouting tax laws.
2. Paying Your Nanny Cash Is Illegal Unless You Declare It
If you pay your nanny cash without declaring it then you may well be breaking the law. Given some of the complexities of paying employees, it is far easier and less risky not to pay them in cash even when you are declaring income to the ATO.
Nanny pay means you’ll need to bear the cost of income tax and Superannuation contributions, if applicable. You might also be liable to make child support or student loan payments.
Every cash job leaves a trail. The Tax Administration Act gives the ATO the power to access a wide range of personal information. It’s a mistake to think the ATO would not use its authority if it has reason to suspect you are paying someone in cash.
3. You Could Face a Fine or Jail for Non-compliance
If you pay your nanny in cash under the table and do not comply with tax laws, then you are putting yourself and your family at risk. Think about it. If you had to spend time in prison, who would look after the children?
Even if you’re not a habitual offender, you could face a hefty fine and a penalty of up to 150 percent of the tax owing. That could have a serious impact on your income and your future plans.
A criminal record can adversely affect all aspects of your life including your ability to borrow or find future employment.
4. Leave Requirements under the Miscellaneous Award
If you pay your nanny cash under the table, you might well be failing in your legal obligations related to paid leave. The requirements about this are crystal clear.
Under the Modern Award system in Australia, employers have to extend a minimum amount of annual leave to their employees. That’s on top of paid public holidays, sick and bereavement leave.
The minimum entitlements based on this legislation are 4 weeks of paid leave each year, accruing from their first day of employment.
5. Your Nanny May Be Stung for Extra Tax at the End of the Year
You have a duty of care to anyone you employ such as your nanny. That includes making sure that you get their nanny pay right.
If you try to pay your nanny as a contractor or as someone who is self-employed, then they might well get a nasty surprise from the ATO at the end of the year. They might end up paying tax that they shouldn’t have to pay. There will be plenty to unpick.
The way you have been paying your nanny will then unravel causing both parties a long list of avoidable complications and added stress.
Leave It to Pay the Nanny
Pay The Nanny offers compliant and flexible nanny payroll services to anyone employing a nanny. Leave it to the experts. Don’t get caught out by getting nanny pay wrong.
Get in touch with us now. We’d love it if you gave us a like over on our Facebook page too.
About Pay The Nanny
Our mission is to make it as simple as possible for households to manage payroll for their nannies.
Pay The Nanny provides friendly, accurate and flexible nanny payroll services to nanny employers. We take care of everything to do with PAYG, Workers Compensation, holiday pay, sick pay, maternity leave and Superannuation.
For more information, check out our website at www.paythenanny.com.au. Make sure you give us a like over on our Facebook page too.
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