Gross vs Net Pay
Employment in the UK is almost always discussed using a gross salary agreement, but in the nanny industry net salary agreements have been commonplace. Nannytax advocates the 'Go Gross' campaign as it protects the nanny employer's employment costs.
Protect the Total Cost
Employers who have net wage agreements are committing to paying all of their nanny's deductions that make up the gross wage, regardless of tax code or tax history.
A worker's current employer has the responsibility to pay any monies owed by the employee by collecting it from their gross salary. If any further deductions become necessary such as unpaid tax or debt repayments this will ultimately increase the total cost of employing that person, if, a net salary has been agreed and therefore fixed.
The tables below show two families employing nannies with the same tax status. The Newtons have a net agreement and the Grangers have a gross agreement. Each nanny wants to 'take home' around £1500 per month. The tables show what will happen to the Newtons' Total Cost when additional deductions become necessary.
Gross is better for nannies too
The Tax-Free allowance increases every tax year and net agreements will not see the benefit of this. On net agreements, the employer will see the tax saving, not the nanny.
If the employer's Total Cost increases significantly, on a net agreement they may decide they cannot afford to employ the nanny. This may cause a difficult situation for all involved.
Worse still, the employer may only declare part of the nanny's earnings to compensate. Doing this will have implications of its own and affect the nanny's statutory entitlements and mortgage/loan applications.
Finally, a gross agreement enables the nanny to compare their own salary with other professions in the UK, to assess their earning power and consider career options.
| Net Pay | Tax & NI | Gross Salary | Employer's NI | Total Cost (Monthly) | |
|---|---|---|---|---|---|
| Newtons (Net) | £1500 | £350 | £1850 | £50 | £1900 |
| Grangers (Gross) | £1500 | £350 | £1850 | £50 | £1900 |
The red figure shows where salary agreement has been fixed and as long as there are no additional deductions, net agreements incur no extra costs. However, the table below shows what happens when further deductions are applied.
As the Grangers have agreed in gross, their Total Cost is not affected. Their nanny 'takes home' less as they are paying for their additional deductions themselves, which is as it should be.
As the Newtons have agreed in net, their nanny is guaranteed to 'take home' £1500. The Newtons must cover the extras out of their own pocket, increasing their Total Cost.
| Net Pay | Tax & NI | Unpaid Tax | Student Loan | Pension | Gross Salary | Employer's NI | Total Cost (Monthly) | |
|---|---|---|---|---|---|---|---|---|
| Newtons (Net) | £1500 | £350 | £25 | £100 | £50 | £2025 | £50 | £2075 |
| Grangers (Gross) | £1325 | £350 | £25 | £100 | £50 | £1850 | £50 | £1900 |
* The figures shown are to demonstrate and are not accurate salary calculations.