What is this ‘gross’ and ‘net’ nanny pay thing all about?

One thing many parents find baffling when they first start dealing with nannies is the phrase ‘net pay’.

Nannies seem to be the only profession that talks about their salary in terms of ‘net’ -- everyone else talks in terms of ‘gross’.

Not only is this confusing, it’s also dangerous. If you get ‘net’ and ‘gross’ mixed up when talking to a nanny about their hourly rate, you might get a major shock later on when you find out how much it’s really going to cost.

We’ve seen it many times. A parent says, “I’ve found a nanny that costs £10 per hour for full time sole care!” Given how much nannies charge in London, it is virtually certain that this is a ‘net’ figure, meaning the true cost of employing that nanny might be much higher, say £14-16 per hour.

To understand what you’re really signing up for when you hire a nanny, you need to understand three concepts: gross, net and total cost.

Most people are familiar with the concept of gross pay. It’s what you talk about when you talk about your salary. If you say ‘I earn £60,000 per year’, that’s your gross salary.

Out of that gross amount, tax and national insurance is deducted. So if you get £60,000 gross salary, you might get £3522 in your pocket each month, which is £42,264 per year. That’s your net pay, the pay you take home after tax has been taken off (that’s why it’s also sometimes called ‘take home pay’ or just ‘take home’).

So far so good? Just one more concept. You might be forgiven for thinking that as an employer, you pay the gross salary of your employees. Unfortunately, you don’t. You also have to pay something called ‘employers’ national insurance’, which is added to the gross salary to make total cost. In our example, your employer might be paying an additional £7100 per year in employers’ national insurance, for a total outlay of £67,100.

Okay, so here’s where the confusion comes in.

Unlike most professions, nannies have traditionally quoted their rate in net. Many – perhaps most – still do this. So if you’ve found a nanny that says her rate is £10 per hour, it’s highly likely that this is a net rate and is quite a lot lower than the actual cost.

If that so-called ‘£10/hour’ nanny works (say) 50 hours per week, and has a normal tax code, the additional tax would be £1.74 per hour, her (‘employees’’) national insurance would be £1.18 per hour and your (employers’) national insurance would be £1.34 per hour.  The total cost to you as the employer would actually be £14.26 per hour. That difference means £11,060 per year you might not have budgeted for.

That’s why it’s so important to:

  • Clarify with any nanny whether the rate you’re discussing is net or gross
  • If it’s net, use an online calculator to figure out your total cost
  • If the nanny herself seems unsure, refer her to this post
  • When comparing different forms of childcare, make sure you are comparing apples with apples. Don’t fall into the trap of comparing a nanny’s net rate with other forms of childcare (such as nursery, childminder or a Koru Kids nanny share), which are all expressed in terms of ‘total cost’.

Want to keep childcare costs down? Consider a nanny share. It's free to register with Koru Kids to see if there's a local family to share with.