Why nannies lose out on net pay rates
Most nannies that agree net rates do so because they want to take home a guaranteed amount. They have bills to pay and need to know they will have enough money coming in to meet their financial commitments. But here’s the thing: that doesn’t just apply to nannies! We all need to know our net take-home pay so that we can budget accordingly. But that doesn’t mean that we should have to pay for the privilege. No other profession would be caught out like that.
So how much does a nanny lose out when she fixes her net pay? This does depend on individual circumstances, but let’s look at two straightforward examples. Rebecca and Sarah have both been nannying with their families for 4 years, on identical hours. Rebecca agreed a pay rate of £400 net per week when she started in January 2016. Sarah agreed a gross rate of £501 (having checked that she would take home roughly £400 net from that). Let’s see how much they actually take home over the course of the employment:
| Net take home pay | ||||
|---|---|---|---|---|
| Rebecca, fixed net | Sarah, fixed gross | |||
| Jan to March 2016 | £400.00 | £5,200 | £400.28 | £5,204 |
| Year to March 2017 | £400.00 | £20,800 | £401.68 | £20,887 |
| Year to March 2018 | £400.00 | £20,800 | £403.92 | £21,004 |
| Year to March 2019 | £400.00 | £20,800 | £405.92 | £21,108 |
| £67,600 | £68,203 | |||
In this example, Rebecca has lost out on £603 across the employment so far. In the past year alone she has lost out on £308. These are huge figures, and if it were possible to outlaw the practice then the powers that be would do just that. However, pay is a contractual matter, so it’s not something that HMRC can influence.
Of course this is a very simple example, and takes no account of pay rises, second jobs, or employment gaps. However, the principle applies to all. The figures are based on the tax changes that apply to all employees across the country. The changes are announced in the Budget each year, when we are all told how much better off we will be going forward, despite increases in the cost of living. Nannies who have fixed their net pay don’t get the tax benefits (but of course they do have to put up with the increase in the cost of living).
Nannies do have to make sure that they agree the correct gross pay rate to arrive at the amount they want to take-home, and that’s not always easy. Some nannies just trust the parents / agency / payroll company to get this right, without taking into account the full picture. Here’s how to check the offer yourself:
Don’t use net to gross calculators which take no account of your personal tax situation.
Do use NannyMatters unique nanny tax calculator www.nannymatters.co.uk that gives the correct advice according to individual circumstances. It’s a free online tool.
So how does pension impact?
Pension contributions fall into two types:
- Employee contributions which are deducted from net pay. The contribution is the same whether you agree a gross rate or a net rate.
- Employer contributions, which don’t affect the nanny’s pay. They are an added benefit, a valuable extra payment into the pension pot. The nanny only gets this extra if she remains in the pension scheme making her employee contributions.
The minimum pension contributions are fixed by the government, but of course nannies can pay in more if they want.
Rarely, a generous employer will agree to pay in more than the statutory minimum. Sometimes an employer will pay in enough to cover the nanny’s contribution too, but that is very, very rare.
Minimum pension contributions increase in April, and some nannies might be tempted to opt out of their pension scheme, to take home more net pay. But they should think very carefully first, because if they do opt out, they will lose out on the valuable employer pension contribution. Employers are not allowed to offer salary instead, or any other incentive that will discourage you from remaining in the scheme.
Further help
NannyMatters are always happy to help nannies and agencies calculate the correct gross pay rate. Use our calculator at www.nannymatters.co.uk or drop an email to enquires@nannymatters.co.uk .