Agreeing a gross or net salary

Net Salary

Many nannies like to agree a fixed net salary, (take home wage) this means that you as the employer will pay the nanny a fixed amount of net pay (take home wage) and accept responsibility for any Tax & NIC as you have agreed regardless of the Tax & NIC amount, you guarantee your nanny the NET wage. You are now responsible for ADDING to the agreed Net wage the Tax & NIC due to bring the wage to a Gross format and then each quarter period forward the Tax & NIC to HMRC.

The drawback to agreeing a fixed net wage is that the amount of Tax & NIC added onto the net wage to bring it to a gross format is like all Tax & NIC subject to change, either by direct government policy of raising tax thresholds or HMRC sending a tax code allowance change.

If the Tax & NIC increases due to these variations the increase is added onto the agreed fixed net wage to bring the salary to Gross format and you the employer end up paying more Tax & NIC to HMRC increasing your employment salary costs
It must also be remembered that the current employment situation of the nanny must be taken into account, if this is second employment position then basic rate tax applies, meaning that secondary earnings are taxed with no tax free earnings, thus increasing the Tax & NIC due which is added to the agreed fixed net increasing your cost.

For example;

(These figures are to make the example clear and do not represent actual deductions)

Agreed net wage is:

• £200 per week
• Tax & NIC £50 per week
• Total salary cost to you £250

TAX or NIC rises due to government policy or decrease of tax code allowance of employee, resulting in a total Tax & NIC rise to £75 per week:

Agreed net wage is

• £200 per week
• Tax & NIC £75 per week
• Total salary cost to you £275

Gross Salary

Most of the working population accept that with a job vacancy, the advertised salary is a Gross salary. This means that the employer DEDUCTS Tax & NIC from the gross salary and pays the employee the net (take home wage).

The advantage of agreeing a Gross salary with your nanny is that you always know the maximum amount you will pay in a fixed Gross salary as Tax & NIC is deducted from gross and any increase in Tax & NIC results in a reduced net (take home wage) to the Nanny.

For example

(These figures are to make the example clear and do not represent actual deductions)

Agreed Gross wage is:

• £200 per week
• Tax & NIC £50 per week
• Total net paid to the nanny £150

TAX or NIC rises due to government policy or adverse change to tax code allowance of employee, resulting in a total Tax & NIC rise to ££75 per week

Agreed Gross wage is:

• £200 per week
• Tax & NIC £75 per week
• Total net paid to the nanny £125

To conclude

An agreed fixed Net  wage will add to your overall costs if Tax & NIC rises, an agreed fixed Gross wage will reduce the net paid to a nanny and  your gross costs will remain the same.

We at Nannywage Ltd feel that it is our duty to ensure that you are fully aware of the potential disadvantages to agreeing a net wage with the nanny. However it must also be stressed that adverse changes to Tax & NIC may never occur. At the end of the day if you really like this nanny and so do your children, but the nanny wants an agreed net wage, you must decide if you want to miss out on employing the nanny if you are against agreeing a net wage and of course you can always renegotiate a net salary should adverse conditions come into the salary equation in the future

If you require further advice please e-mail info@nannywageltd.co.uk.