Why you should never negotiate your nanny’s salary in net terms
Astrid Hamilton from Nanny Payroll says you can save hundreds with this simple negotiating strategy.
It's not uncommon for nannies and nanny employers to negotiate salary in net terms i.e. the amount your nanny will take home versus their gross salary (before tax). This is understandable as your nanny will be keen to know how much cash they'll get in their hand at the end of the week. But negotiating in net terms not only leaves you vulnerable to unexpected financial surprises but it could leave both you and your nanny out of pocket. Astrid Hamilton from Nanny Payroll reveals four reasons why it is a mistake to agree net wages and why you should always work with gross figures.
1. Some deductions will be out of your control
Astrid explains: "In simple terms, your nanny's pay is calculated starting with the gross pay, making deductions for tax, PRSI and USC, to give the net pay. When negotiating your nanny's contract, you need to agree a rate of pay. It makes sense to fix a gross rate of pay. This is because the deductions made are outside the control of the employer; they depend on your nanny's tax credits, whether they have a second job or whether they owe back taxes to Revenue. If you agree a net rate, then suddenly you are liable for all of these and it could be very costly."
2. There are benefits for your nanny, too
There are benefits, too, for the nanny in agreeing a net salary. When the government announce the budget each year, there are often tax benefits intended for employees. For example, in the 2022 budget, the personal tax credits increased to €3,400 and the tax cut off points increased to €36,800. If you are paid a gross wage, you get the benefit of these measures and effectively get a pay rise. If you're paid a net wage, your employer reaps the rewards and you take home the same amount.
3. You could lose out on hundreds
Take this example: You're a nanny employer. You've agreed to pay your nanny a net rate of €12 an hour for 25 hours a week, giving a monthly net of €1,300. You've assumed they have the standard tax credits and cut off points. You'd expect to pay a gross of €1,311.21 per month and a total cost to you of €1,426.60. However, your nanny has a second job and has split their tax credits and cut off points across the two. Suddenly you're looking at a gross of €1,465.79 to achieve the same net and a total cost to you of €1,594.78. This means you'll pay an extra €168.18 per month, for the same service all because of something completely outside your control.
4. Your nanny could see an unexpected pay boost
Take this example: You're a nanny. You've agreed a net rate with your employer of €600 per week. Assuming standard tax credits apply, in 2021, your employer needed to pay a gross rate of €735.75 to pay you this net. In 2022, that same gross would have given you a net of €607.69. It might not seem like much of a difference but over a year it adds up to a payrise of nearly €400. That pay boost would have cost your employer nothing but the saving is now in your their pocket instead of yours.
Nanny Payroll can help you work out equivalent gross rates, if your nanny has asked for a net wage, based on standard tax credits and cut off points. We always recommend agreeing a gross rate of pay. Give us a call today on 087 389 9211.