In London and the South East in particular, some parents and nannies make the mistake of negotiating net rates, rather than gross. There is a big difference; Gross Pay is the amount before deductions, and Net Pay is the amount the nanny receives. Net pay rates have always been unfair on nannies, but with the introduction of pensions, maintaining a Net rate is no longer workable for employee and employer alike. Everyone likes to know their take-home pay, but only nannies negotiate Net, and they lose out because of it.
Under a Net pay agreement, the employer agrees to pay a fixed Net pay, with the tax, national insurance and pension calculated on top, no matter how high they might be and the amounts can be variable.
Advantages of agreeing gross for the employer
- Your costs are fixed at the outset. You cannot be hit with unexpected HMRC bills for extra taxes.
- You can deduct the employee's pension contribution from your nanny's pay. Also if your nanny wants to pay more into the pension pot, they can do so without increasing your employer costs.
- Your nanny's pay could become subject to other deductions which you may not want to fund: Student Loan and / or a Court Order - with a Gross salary this cost would be paid for by the nanny.
Advantages of agreeing gross for the nanny
- The nanny receives any tax refunds (not the employer)
- The nanny benefits from a higher net pay if less tax is due (ie. due to a period with less or no income)
- The nanny benefits from the reduction in taxation announced by the Chancellor each year.
- The nanny can choose to save more than the statutory minimum for retirement.
If you decide to agree a Gross pay rate, but your nanny is asking for a Net amount, you will need to know how much to offer. NannyMatters can help you by working out an ‘Equivalent Gross Pay’, based on the current tax and NI rates, the nanny’s current status as a taxpayer and the expected net pay.
IMPORTANT: If you have already offered a net rate, then you may not be able to retract the net offer and restate it in gross terms. You cannot offer a net rate and then agree a gross rate in the written contract, because this represents two conflicting agreements. In other words, you can't agree both figures.
If you would like any further help or information on this subject contact the payroll team.