Nanny Share Payroll: Splitting Pay and Tax Between Two Households

A nanny share can make quality childcare more affordable, but the moment two families are involved, payroll gets a lot less straightforward. Here's how pay, tax and leave should work when a nanny is looking after children from two households, and how to set the arrangement up properly from day one.

Nanny shares are becoming a popular option for Kiwi families who want the flexibility and one-on-one attention of a nanny without carrying the full cost alone. Two households team up, the nanny cares for children from both families (often at the same time), and everyone saves. On paper, it sounds simple. In practice, nanny share payroll in NZ is one of the areas families get wrong most often, usually because the employment side never gets sorted out properly before the arrangement starts.

What is a nanny share, exactly?

A nanny share is when two families use the same nanny, typically across the same days or hours. A common setup is one child from each family being cared for together, say Monday to Thursday, with the nanny working for both households under one roof or alternating between homes.

It sits nicely between daycare and employing a nanny solo: families get more personalised care than a centre can offer, at a lower shared nanny cost than employing someone exclusively. The catch is that the employment and payroll side needs to be worked out properly, not left to chance.

Who is actually the nanny's employer?

This is the question that trips up most families, and it needs an answer before the nanny starts, not six months in.

A nanny share isn't simply a case of splitting an invoice down the middle. If a family decides when, where and how the nanny works, that family is generally considered an employer, with the usual obligations around PAYE and other deductions that come with paying salary or wages.

In a nanny share, the nanny may end up with a separate employment relationship with each family, or the arrangement may be structured differently depending on how the care is delivered. There isn't a one-size-fits-all answer, which is exactly why it pays to get this settled properly at the outset rather than trying to retrofit a payroll structure later.

Splitting nanny pay between families

Once the employment structure is clear, the next step is agreeing how wages are divided.

Say a nanny earns $36 an hour while caring for children from both households. Some families simply split this 50/50, working out to $18 an hour each. But an even split isn't a given. One family might need extra hours, have more children in care, or use the nanny during periods the other family doesn't need coverage.

What actually matters is that both households are crystal clear on:

• the nanny's agreed gross pay rate
• which hours belong to which family
• how shared hours are allocated between households
• how extra or one-off hours are handled
• what happens if only one family needs care on a given day

A proper timesheet process, agreed to by both families and the nanny, makes splitting nanny pay between families far easier to manage week to week and removes a lot of the awkward conversations down the track.

How PAYE and tax work in a nanny share

This is where things often get complicated, because a nanny with two genuinely separate employers has a tax position that needs to reflect both income sources.

Inland Revenue is clear that anyone earning taxable income from more than one source may need a secondary tax code applied to the additional income, using an IR330 declaration provided to each employer. There are also potential IR56 rules that could apply to private domestic workers, defined by Inland Revenue as people who work in their employer's home doing tasks unrelated to that employer's business, who are paid directly and who work no more than 30 hours a week, on average, for each employer. However, these can be cumbersome for a nanny to manage themselves so a lot of families opt to use a payroll service.

In other words, splitting the nanny's take-home pay into two bank transfers each week doesn't automatically mean the tax side has been handled correctly. Both families need to understand their own PAYE obligations as separate employers.

Annual leave and public holidays in a shared arrangement

Leave is another area where informal nanny shares tend to unravel. Under New Zealand employment law, employees are entitled to at least four weeks of annual holidays after 12 months of continuous employment, and employers are required to keep accurate leave and holiday records.

Public holiday entitlements depend on whether the day would otherwise have been a working day for the nanny. If she typically works for Family A on Mondays and Family B on Tuesdays, a Monday public holiday can create very different payroll outcomes for each household. A single, informal "leave balance" shared between both families rarely holds up once the nanny takes leave, or if one family ends the arrangement before the other.

Where nanny share payroll commonly goes wrong

Most issues start the same way: two families agree on a rate, transfer their share each week, and assume that's the payroll side sorted. Then, months later, someone asks how much annual leave the nanny has accrued, whether KiwiSaver has been calculated correctly, or who covers a public holiday.