Net wage agreements - an example
By agreeing a net wage with the nanny the employer is agreeing to pay all tax, whatever it may be. In other words a nanny on a net wage agreement will always take home the same amount. This may be good for the nanny; however, for the employer it could prove to be a costly decision.
If you agree a net salary of £300 per week the nanny's gross salary would be approximately £361*, but in addition to nanny's tax and NI the employer must also pay employer's NI contribution, which in this instance would be approximately £29*, bringing the total cost to £390*. The difference between the agreed net pay and the real cost in this example is approximately 30%. For many employers that is too much, and they may realise they can't afford to keep her.
If the nanny is not on a standard tax code or there is unpaid or underpaid tax from previous employment, or perhaps a student loan, it could become even more expensive.
*figures rounded to the nearest pound, tax year 2013/2014