Gross v Net
Most people’s salaries are defined in gross terms, but unfortunately in the nanny industry, net salary arrangements i.e. agreeing a take home pay figure, have been the traditional practice.
But beware, agreeing a net salary could end up costing you a lot of money!
If you agree a net wage and your nanny has a student loan or an outstanding debt with HMRC then the nannys monthly money in their pocket would remain the same but your costs would increase as you would effectively be paying the nannys student loan or debt on top of their wages!
We would always recommend agreeing a gross salary as this then protects you the employer from any hidden costs.
But….gross is better for nannies too!
The Tax-Free allowance increases every year and net agreements will not see the benefit of this. The employer will see the tax saving, not the nanny.
Example: If you agree a net of £2,000 per month and nanny has no deductions other than tax and NI then your total cost each month is £2,737.99 including your employers NI.
Should you agree this net and nanny has an outstanding student loan the net remains at £2,000 but your total cost then increases to £2,890.06 as you are then not only paying nanny the net but also paying her student loan and then additional tax and NI on top of this.
If you had agreed a gross wage of £2,494.73 (equivalent of £2,000 net) then your overall total cost stays the same. The nanny would then pay her own student loan of £79 and her net reduces to £1,921.