History of Nanny Contracts
Virtually every other job in the UK is contracted on a gross salary basis. But for the nanny profession. Net salary agreements have been traditional. Why? Possibly because historically nannies, governesses and companions were considered to be ‘ladies’. Not servants and the distinction was they they were doing a voluntary service for the house in which they served. Not a paid job. Based on that little bit of old-fashioned thinking. We still see many nanny contracts agreed in net salary terms.
Net v Gross
There are considerations to bear in mind when deciding which way to go. First, employers agreeing a net contract will be committing to meet all their nanny’s deductions. Whatever the nanny’s tax code or tax history. This means that might find themselves liable for. Unpaid tax, student loan debt, pension arrangements etc. And as these liabilities must be met outside the net salary agreement. Unwary employers can find themselves paying more than they expected.
Second. Nannies often benefit more from gross salary agreements. This is because there are additional considerations to simply ‘take home salary’. For example. The Tax Free Allowance benefits the employer on a net salary agreement. But not the nanny.
Over a lifetime of work. Failing to benefit from the allowance can be a significant personal cost. Sometimes an employer doesn’t like the total cost of the net salary agreement. Then decides to declare less of the nanny’s earnings than is in fact being paid. Having a lower than agreed declaration sound okay, like ‘cash in hand’. But the reality is that for a professional nanny. This can have long term implications on mortgage and loan applications, and other statutory entitlements.
And if you think that’s a headache. Just take a look at what nanny negotiations are like in New York.
Nanny tax and reporting
But the headaches aren’t just around agreements between nanny and family. An additional burden is new HMRC PAYE guideline. Since April 2013, PAYE has been adjusted to reflect changes in the welfare system around Universal Credit. This brings additional burdens for employers. Such as.
- Needing to report every single payment to HMRC online. Before it is made to the employee.
- •HMRC informing employers what tax code to use. Rather than being able to use the one indicated on a P45.
- •Extra costs if you use payroll system and pay weekly. Because of this additional reporting to HMRC before each payment.
As a result, negotiating in gross salary terms will simplify your life. Ensure your nanny knows exactly what she can expect to be paid. Also free you from the fear of unexpected extra costs.
Finally, there is a very good reason to set gross salary terms. For both parties, a gross salary agreement allows a simple comparison with other professions and other nanny contracts. This guarantees that both the employer and the nanny have a clear picture of where the contract sits in the whole scheme of the profession and allows for clarity around negotiations. In other words. It is likely to be simpler and fairer in the long run.
Ultimately, what everybody wants is a happy child, happy family, happy nanny. Also clear, easily applicable contract ensures that’s what you get!