The idea of domestic staff conjures up archaic images of Jeeves and Wooster and Upstairs, Downstairs, but research from Barclays Premier suggests that one in four households now pays for help in the home, or is considering doing so. Most in demand are cleaners, nannies and gardeners.

Hiring help can free up valuable time, but it’s a money minefield, with hidden costs and a number of tax and insurance hurdles to negotiate. Agencies can smooth the way, but these are unregulated and expensive. Whether or not you use an agency, Nicola Frame, of Which?, the consumer group, says that it is vital to interview candidates and to check insurance certificates and at least two references.

Many costs hinge on whether you are classified as your worker’s employer. If you pay him or her more than the PAYE threshold of £100 a week, you will be classed as an employer and must register with the Revenue. If not, ask for clarification from the status officer at your tax office.

Employer status means that you will have to deduct and pay your employee’s national insurance and income tax contributions – adding £200 to a £400-a-week net salary. Failure to register could lead to huge back payments and a fine. The rules are outlined in the HMRC New Employer Starter Pack, available by calling 0845 607043.

Employers must also formalise the working relationship with a contract. This can be drawn up by a solicitor or using a template sold, at a fraction of the cost, by a professional association such as the Professional Association of Nursery Nurses (PANN). Employment law applies even without this piece of paper, which should be signed within eight weeks of work starting. Bettina Bender, a partner at CM Murray, a specialist law firm, says: “You are liable for sick and maternity pay, and more. It is much better to know where you stand from the outset by agreeing the specifics in a contract.”

Childcare is the most expensive form of domestic help. Nannies’ salaries are advertised as a net figure, which can be confusing. PANN says that the annual gross salary for a daily nanny averages between £20,000 and £29,000, with year-on-year increases above the rate of inflation. Live-in nannies are cheaper, at £17,000 to £23,000, but these require accommodation and are hard to find.

All nannies are classed as employees so come with plenty of Revenue red tape. Many parents use a payroll service. Nannytax charges £260 a year, with free legal advice.

Limited government help is available. Under the childcare element of the working tax credit, lone parents or couples working 16 hours or more a week and earning up to £59,000 can claim towards fees paid to carers registered to the Childcare Approval Scheme. This means as much as 80p in the pound on the first £175 a week paid by those earning a combined £5,000 a year but totals only £210 a year for parents on £55,000.

Factor in expenses such as the use of a car, an annual bonus, birthday presents and groceries for breakfast and lunch. These are easily forgotten but they can add thousands to the annual bill.

Hiring a cleaner should be more simple. The British Institute of Cleaning Science says that most are self-employed and can be sourced through contacts or local small ads. Beyond the standard interview and insurance and reference checks, Rosie Fletcher, the author of a Which? report on cleaners, says that clients should agree a comprehensive list of tasks and establish whether or not cleaning products are included. Ms Fletcher says that average hourly rates are between £6 and £8, or £8 to £12 if hired through an agency.

The Royal Horticultural Society gives similar guidelines for hiring occasional gardening help, noting that many reliable operators do not belong to the handful of relevant associations. Garden maintenance costs are usually in a range from £10 to £14 an hour.

William Denne, of the society, advises holding back 15 per cent of payment until completion of any job in case of argument. He says: “Ownership of surplus materials and disposal of rubbish are common causes of dispute.”

Gardeners straddle the divide between casual help and old-fashioned retainers. If you want to employ the latter, many of the complexities that muddle nanny law apply. But if you are in the market for a butler, valet or lady’s maid, the chances are that you can afford top agencies and face-to-face financial advice.

The black market

Employing an illegal immigrant is a criminal offence and can lead to a fine with no upper limit.

Housing that person can be seen as “harbouring” – a more serious offence that could lead to a prison term and a £5,000 fine.

As an illegal employer, you will be unable to buy employer’s liability insurance. Your worker will also be uninsured.

Basic document checks can confirm a person’s right to work. Go to www.nannytax.co.uk.

Many UK and EU citizens who are entitled to work are illegally employed. See the Revenue website, at hmrc.gov.uk, for tax obligations and penalties.

Don’t forget insurance

Employer’s liability insurance will protect you from payment of damages if your employee is injured on the job.

Lack of this cover, which is standard in most household policies, could cost you your home.

If your help is self-employed – as most cleaners are – you do not need employer’s liability cover, but you should check that your policy includes public liability cover, which offers similar protection.

Workers in your home should also have public liability cover, which will pay out for damage they cause to your property.

Check that your contents cover will pay for theft without “violent entry”. Many policies will not.

CASE STUDY

Karen Hodson, of Dulwich, South London, dedicated a month of her maternity leave to finding a nanny in 2000. She eventually found Fi StarStone, 32, a qualified nursery nurse, in a free specialist listings magazine. “It was worth the time and effort,” Ms Hodson says.

Ms StarStone, pictured with Ms Hodson’s sons, Jack, 6, and Ben, 4, was one of 26 candidates interviewed and now looks after the boys ten hours a day.

Ms Hodson, 44, a partner in a law firm, says that employing a nanny has proved much more expensive than she expected, with higher-rate tax payments, bonuses, birthday presents, use of a car and increases on a salary that now stands at £39,200.

Nevertheless, Ms StarStone is indispensable. “I couldn’t contemplate doing my job if I wasn’t 100 per cent sure that my children were in safe hands,” Ms Hodson says.