Our handy guide to Gross vs Net pay, and why on the Happy Nest Jobs Board we list wages for jobs in gross figures.
What is the Go Gross Campaign?
Established by NannyTax, #GoGross is a campaign that aims to help the nanny industry understand the importance and benefits of operating in gross figures. The benefits of shifting to gross figures when dealing with nanny salaries, instead of the old habit of net figures (take home) are important for both nannies and families.
By “going gross”, payroll standards for nannies across the UK will continue to improve. And by understanding what gross income means, nannies will be more empowered when seeking and acquiring jobs.
Also, just as nannies should receive tax and employee rights like employees in any other industry, it’s equally important that employers of nannies get a fair deal too.
Because these days, when a family hires a nanny, they become an employer. Which means they’re subject to certain employer responsibilities. For example, they must provide a safe working environment. They must ensure they have the appropriate employers’ liability insurance. And they must declare tax and make other required deductions, in accordance with HMRC law.
As a result of this, it’s vital that employers conduct salary discussions in gross terms, not just to comply with the laws, but also so that they can benefit from accurately forecasting and budgeting their expenditure.
What does it mean to talk in Net vs Gross pay, and the difference between the two:
Unless you’re in the finance game, many of us get confused with the terms “gross” and “net”.
To put it simply, gross pay is the amount a nanny is paid before any deductions are taken from it. When we talk in gross amounts, it is always the bigger number.
And net pay is the amount remaining that a nanny receives after all deductions have been taken out. Net pay is always the smaller amount. It’s as simple as that.
The most well known deduction is tax, but there’s others.
So why is this so important? And can’t we all just get on the same page?
Well yes, that’s the goal. And we’re well on our way to getting there!
Traditionally it was fairly common for nannies (and therefore most agencies) to talk in net amounts. This is because for years many nannies were paid cash in hand. Shocking, we know, but those days are over! Now that parents who hire a nanny are classed as employers, the nannying occupation has been revolutionised.
As a result, nannies are now eligible for the same rights and entitlements as every other employee in the country. Which means just like everyone else, nannies can access National Minimum Wage entitlements, Holiday Allowance, Sick Pay, and Maternity Leave.
However, from time to time, we still see nannies who ask what their ‘take-home pay’ will be. And nannies who ask their employer to agree to a net salary. So let us outline for you the fundamental benefits of “going gross”.
Gross versus Net: what it means for you as the family?
1.) Budgeting costs
When a family offers a nanny a gross salary, it means as an employer it can budget more effectively. This is because the family needs to consider how much tax, NI and pension contributions are to be paid on top of the nanny’s take-home, or net pay. If the family takes these extra costs into consideration from the outset, it has a better idea of how much it will cost to employ a nanny.
If, on the other hand, a family agreed in the employment contract to pay their nanny a net salary, they actually by law have committed to paying all of the deductions that nanny is required to pay, regardless of the nanny’s tax code or tax history. Surprises may come out, and for the family it is essentially like signing a blank cheque.
2.) To relieve the risk of the employer being held liable
By law, if the nanny is on a net salary contract, the employer is liable for any of the nanny’s unpaid tax from previous jobs, court-order or child maintenance payments and even a student loan. Even if any of these circumstances are discovered later, it will be the family who legally has to pay.
3.) Pension Contributions
The law (as of April 2019), states that eligible nannies must pay 4% of their salary as a contribution towards their pension, and the employer must pay 3% on top of that. This is what happens with a gross salary contract.
If instead there is a net salary contract, the family will have to pay both those amounts (ie the family will have to pay 7% on top of what they pay their nanny).
4.) So as to easily comply with HMRC
It’s no secret that tax law is incredibly complex! So why make it more?
Given HMRC will only talk in gross terms, it’s simpler for all involved to likewise do the same. You’ll find this to be particularly beneficial if you’re operating PAYE, and wanting to declare correct tax.
Although of course, at Happy Nest we take this stress off your hands! When you use our services, we set you up as an employer with HMRC, and send you monthly payslips for your nanny. Click for more info about our payroll service.
Gross vs Net Pay: what it means for you as the nanny?
1.) Job Stability
If the family you work for – your employer – has agreed to a net salary without budgeting in tax deductions, and NI and pension contributions, they may later realise that they can’t actually afford a nanny.
If any other unforeseen requirements like a student loan or unpaid tax comes to light, this may lead to conflict in the working relationship if the employer has to pay these debts for you. All of this ultimately also puts the nanny’s job at risk because the employer may rethink their childcare options.
2.) Tax-Free Allowance
Nannies on a gross salary benefit from the tax-free allowance which usually increases each April. As of April 2019, this is £12,500 (see rates on .gov here). With a net wage agreement, it is the employer who will see the tax-saving and they will receive any tax refunds that the nanny may be due.
3.) Easy Comparison
Almost all employees in other industries talk about their salaries in gross terms. It’s the norm. So by getting on the same page, you as a nanny can more easily compare your salary to other industry salaries. Having a set standard means it’s easier for us all to assess job descriptions and advertisements, contracts and general life budgeting. Talking in gross salaries and having contracts with gross salaries means nannies can clearly and accurately understand their earning power, their professional worth, and career options.
4.) Banks and Loans
For some, this might not be so high up on your radar. #YOLO, live fast die young and all that. That’s for old people y’all! We get it; been there – got the t-shirt. But there will come a time, probably all-too-soon, that you may need to have your ducks in a row. For example, suddenly you fall in love, want to get married, need a loan to pay for the wedding and you also want to remortgage the house. [Oh hai, speaking from experience here!]
So for the sensible nannies (which as a Happy Nest nanny we know you are), it’s a good idea to make sure you’re off to the right start from the get-go. And whether you’re speaking to a loan advisor to upgrade your car or the bank to finance your new house, they will want to see gross earnings. Therefore, agreeing to a contract in gross salary terms will mean you’re covered with the right paperwork for when the time comes.
To sum it up: #GoGross to benefit both nannies and employers!
If you need advice about hiring a nanny, how to understand your employer obligations, or how to make sense of your nanny wage slip, please get in touch to speak to the Happy Nest team.