Downsides of a net salary - from the nanny's point of view
Does your nanny want to know how much she takes home after tax and NI deductions have been made? Of course, but that doesn't mean that you should agree a net salary with her.When it comes to negotiating a salary we all know that the taxman will take a fair chunk of it, and we learn quickly enough what our gross annual salary means in real terms: how much we have left to spend at the end of every pay period. So why is it that so many nannies only want to discuss their pay in net terms? And do they know what they stand to lose?
Many first-time employers struggle with the difference between net and gross.The Government regularly increases the personal tax-free allowances and has cut the basic rate of income tax several times in recent years. If the nanny has a net pay deal her employer does not have to pass any potential savings on to her. Only employees on a gross wage will automatically receive the benefit of any cuts by paying less tax and NI.
Many first-time nanny employers don't understand that they must pay tax and NI on top of a net salary, and when they realise the true cost of employing a nanny it may become clear to them that they cannot afford to employ her. Or, perhaps even worse, they decide to only declare part of her salary (in order to save some money). Neither situation is of course ideal, but by only having part of her salary declared the nanny will not only be entitled to less if she wants to apply for a mortgage or a loan (the bank or lender is only interested in her gross salary), it will also have disadvantageous effects on her pension and other entitlements, such as statutory maternity pay (SMP).
But perhaps just as importantly a gross wage enables the nanny to compare her salary with other professions in the UK, thereby giving her an opportunity to assess her earning power and consider her career options.