Why New Zealand Accountants Should Refer Nanny Payroll Clients to Pay The Nanny

"We've got a nanny starting next week" is usually the start of a much longer conversation

Most clients raise it as an aside. The kids' school hours don't quite work, one parent's gone back full-time, or a grandparent who'd been helping out has moved cities. They've found someone, agreed on a rate, and now they're checking in because something about it feels like it might be a payroll question.

It is. Usually more so than they realise.

Inland Revenue treats most nanny arrangements as employment. That brings PAYE, KiwiSaver, ESCT, ACC, payday filing, payslips, the Holidays Act, employment agreements and proper wages and time records into play. Not every one of those will apply to every family, but enough of them will to make this a proper payroll setup rather than an informal arrangement.

The question for the firm isn't whether the client needs help. It's whether you want to be the one running it.

The IR56 question comes up a lot

A small number of nannies in New Zealand are IR56 workers, meaning they handle their own PAYE directly with IRD as private domestic workers. That arrangement is narrower than people assume, and Inland Revenue is fairly specific about when it applies.

Some nanny arrangements do meet the criteria of being able to be paid as an IR56. It sounds great on paper, as the nanny is then responsible for having to manage all the tax and admin.

However, it's actually a lot for a nanny to take care of. They just want to get on with looking after your children and doing their job, not having the burden of tax and administration.

That's where something like Pay The Nanny helps. Even if a nanny meets the definition of an IR56 payer we can help reduce the admin for both families and nannies. We take care of all the tax so the family only makes one payment but the nanny has all their tax and admin taken care of.

Employee or contractor is the other recurring one

The instinct to pay a nanny on invoice is strong, particularly when the nanny offers to invoice themselves. Employment New Zealand and the courts look at the real nature of the relationship rather than the label on it. Direction, integration, the use of the family home as the workplace, regular hours, and the personal nature of the work all push toward employment.

It's the kind of advisory moment where a five-minute conversation can save the client a great deal of trouble later. Most of the time, the right answer is to set things up properly as employment from the first pay.

PAYE, KiwiSaver and ACC each have their own quirks

Payday filing has been the norm since 2019, so each pay event needs to be filed with IRD. KiwiSaver brings minimum employer contributions and ESCT, plus the question of whether the nanny is opted in, opted out, or on a savings suspension. ACC levies sit quietly in the background until the invoice arrives and surprises someone.

None of this is unusually hard. It's just unfamiliar territory for a household that's never run payroll before, and unfamiliar work for a firm that's geared toward SME compliance rather than one-employee household engagements.

The Holidays Act is where families quietly come unstuck

The Holidays Act is famously fiddly even before you put it in a household context. Four weeks of annual leave, ten days of sick leave since the mid-2021 increase, bereavement and family violence leave, public holidays paid on the right basis, and the "otherwise working day" test for nannies whose hours vary week to week.

Pay as you go holiday pay sounds tidy and gets used more than it should. It's only available in narrow circumstances, generally certain fixed-term or genuinely irregular arrangements, and it doesn't suit most ongoing nanny roles.