Moneybox
July 1999
Net Pay - the nannies' curse
The practice of agreeing a net (take-home) wage at the start of a job is still widespread amongst nannies, their employers and nanny agencies. This may reflect a time when employers were not expected to pay income tax and National Insurance Contributions (NIC) for their nanny. But nowadays not agreeing to pay a gross wage (from which tax and NI are deducted) can have serious consequences for an employer and serious disadvantages for a nanny.
Agreeing a net wage may encourage some employers to believe that they don't have to pay tax and NIC on your behalf but it is their legal obligation to do so.
If you agree a net wage (rather than a gross) your employer is not obliged to pass any tax (or NIC) cuts that may be announced in future Budgets on to you. If, however, you agree a gross wage these would be passed on automatically through less tax being deducted from your agreed gross. Since income tax has been cut and personal tax-free allowances increased every year for some years, and since further tax cuts have been promised, you could be missing out in a big way!
Your employer may agree a net wage based upon what they feel they can afford to pay and not realise that the actual cost of employing you can be as much as 50 per cent higher than your net wage - once your tax and NIC as well as the Employers NIC that they also have to pay (and which is not counted as part of your gross wage) are taken into account You may feel that this is their problem and not yours, but if they resent having to pay more for your services than their budget will allow – and worse, blame this on you or the agency that placed you for not alerting them to the true cost of your employment – this is hardly likely to improve your working relationship!
Because the practice of agreeing a net wage has been around for a long time, nannies and agencies may be reluctant to abandon it. But if it serves no real purpose other than to confuse the true cost of your employment and disqualify you from getting the benefit of tax cuts, there is clearly little to recommend it. Even if you do agree a net wage when you start a job, you should really make sure that the current gross equivalent is also written into your contract.
Since a present-day nanny is as far removed from the old Upstairs Downstairs image of domestic employment as is any other young professional person today, the sooner this outdated and unhelpful net wage habit is abandoned the better.