In an increasingly pressured modern world, many families are looking for assistance to meet their children’s daily needs. Often this is done by engaging a nannie or au pair who may be an overseas national. In years past, it was common to simply pay in cash for this assistance or a simple bank transfer or in kind arrangements such as board and lodgings. This practice is now fraught with danger and should be avoided. Families need to appreciate that these engagements are likely to involve legal obligations. There is no special law for the treatment of nannies and au pairs. Failure to comply with these obligations may have serious consequences. Whilst the terms can be interchangeable, an au pair is usually a young foreign national, often with a restricted visa, living with a host family providing child-related care in exchange for room, board, and a financial payment. In contrast nannies usually have specialised training and experience with child care being their vocation and do not always live with a host family.
Many legal issues are complaint driven and workers now have a much broader appreciation of their rights. An au pair or nannie will, almost always, be either an employee or contractor. A contractor is, in essence, a person, persons or company conducting their own independent business. An employee is someone who does not conduct their own business and is subject to control over their day to day activities. Many people perceive that engaging a worker as a contractor solves all their problems. Not so. It is important in our view that any contractor provides their services through a corporate entity and not as a sole trader with an ABN. If a trust is involved then the trustee of the trust should be a company. There are significant risks in engaging with a sole trader which make it inadvisable to enter into that kind of relationship, usually arising out of issues with:
- Superannuation;
- Workers compensation;
- Public liability;
- Employment entitlements;
- Taxation.
If engaging sole trader contractors, you should in our general view be paying their super, paying for workers compensation and public liability insurance to cover them, ensure you are paying them more than they would be entitled to overall under the Fair Work Act and deducting tax appropriately. This will help to minimise the risk of claims being made. There is less risk dealing with a corporate contractor in that you clearly do not have to pay super and workers compensation and a company is clearly not an employee. It is ultimately a matter of the risk you are prepared to accept. It is not so much the risk of “prosecution” by the authorities for sham contracting, but the risk of the above types of claims being made by sole trader contractors or the WorkCover authority or the ATO. It is also important to note that the relevant legal tests as to whether a person is a contractor or employee can vary depending on the particular legal obligation involved. Some obligations emphasise the written agreement between the parties whereas the substance of the relationship is more important for other obligations. You should also keep in mind that the Fair Work Commission can now deal with independent contractor disputes in certain circumstances where a person is effectively performing the duties of the contractor and even where the contractor is a corporate entity. This is one example of the gradual decrease in protection being offered by contracting arrangements. See our bulletin on this topic.
An employment relationship offers the benefit of an employer being able to manage and direct a person (within legal constraints) as the employer wishes and have that person be directly answerable for their actions. It is necessary however to keep in mind that the employment relationship is subject to detailed regulation including:
- Minimum statutory terms and conditions regulating minimum wages, hours of work and various forms of leave;
- Detailed award based regulation of wages and conditions;
- Detailed time and wage record keeping requirements;
- Tax deduction obligations;
- Superannuation payment obligations;
- Workers compensation insurance obligations;
- The need to treat employees in a substantively and procedurally fair manner and not take any action towards them on unlawful or discriminatory grounds;
- Complexity in termination of the relationship.
Au pairs and nannies working as employees are subject to the requirements of the National Employment Standards, Miscellaneous Award 2020 and the Fair Work Act in general. These dictate important requirements such as minimum pay rates, penalty rates, and allowances. Employees are legally entitled to receive superannuation, tax deductions, and formal leave entitlements, even if working in a private home. It is important to note that the provision of a room and board, or other benefits, are not taken into account in meeting these minimum obligations. Injury insurance is possibly the single largest concern. If an employee trips over at your home or falls down stairs or is in a traffic accident whilst out with your children, there may be injuries under the Workers’ Compensation and Rehabilitation Act 2003 (Qld) (or similar legislation in other jurisdictions) and there may be dire consequences if you don’t have appropriate workers compensation insurance in place. Not only might you have to personally pay for all costs and damages associated with the injury, but you may also have to pay a very large fine.
It also does not matter whether the employer is a large corporation or a mum and dad. There is in most instances no difference in the legal obligations – just have a look at the requirements for single touch payroll and superannuation for contractors and employers. There may be practical advantages in engaging a professional nannie agency although it will of course be more expensive. In short, the starting point when engaging a nannie or au pair is that the relationship is no different to any other employment or contracting relationship. Care should be taken to ensure correct arrangements are put in place from the outset.
Please contact us if you would like any further information or help.