When deciding on how and what to pay your Nanny, if you are employing them, (not hiring a self employed Nanny) you will hear three terms being talked about. This can get extremely confusing for employers, so it is essential you know the difference of what each term means.
The net salary is the take home pay the nanny receives in their bank account AFTER their National Insurance, income tax and nanny’s pension contribution has been deducted.
The gross salary is the pay received BEFORE National Insurance, Income Tax and the nanny’s pension contributions have been deducted.
EMPLOYER TOTAL COST
The Employer’s total cost rate is the total amount the employer will pay, which will include the nanny’s salary, Employee’s National Insurance Contribution, Income Tax, Employee’s pension contribution (Gross salary) Employer’s National Insurance and Employer’s pension contribution.
It is important to agree a Gross annual salary and state this in the nanny’s contract. If your Nanny has asked for a certain figure net per hour, you will need to get this figure worked out in the employers total cost rate, so you understand what you will be paying in total. Your Nanny pay roll company will be able to advise you on this.
If your Nanny is self employed, the Nanny will be responsible for their own taxes, National Insurance and pension contributions, and therefore you will pay them an annual gross salary.