Gross and Net Salary
Gross Vs Net pay
Two main aspects of Salary are Net Salary and Gross Salary. It is important to know the difference between them, so you can know how much you are taking home after taxes. Most industries will make their job offers in gross salary, but there are some industries that make an exception and will talk in terms of net salary; one of these industries is the childcare and domestic private staff sector.
The childcare and private domestic staff sector will advertise their jobs with a net salary. At Little Ones, we advertise all our jobs with gross salary levels so that families know how much hiring a nanny or housekeeper will cost. On top of the net salary, Employers will also need to pay Income tax on behalf of the employee, Employee’s National insurance, Employer’s National Insurance contributions and a statutory pension contribution.
What is a Gross and Net Salary?
Gross Salary is known as the full payment the employee receives before tax deductions and other mandatory and voluntary contributions are taken.
Net salary is the payment the employee receives after tax and other mandatory and voluntary contributions (like National Insurance, Pension) are deducted.
Gross Salary vs Net Salary
Gross salary will always be the higher of the two on the payslip. This amount is what the employee has agreed to pay the employee as a salary or wage. Net Salary is what the employee takes home.
For example: If, as a nanny, you earn £2,900 as a Gross salary, after the deduction of pension, NI contributions and taxes (totalling £700), your Net salary will be £2,200. The gap between your gross pay and your net pay is due to the deductions.
For more information about our services, please feel free to contact our direct line 020 7183 0309 or send an email to payroll@littleoneslondon.co.uk
What are the deductions that are made from my gross salary?
Why is gross salary higher than net salary? This is due to the mandatory deductions that the employer needs to make plus those voluntary deductions that the employee has agreed to. Find below a list of mandatory and voluntary deductions that can be found in the UK:
Mandatory payroll deductions
UK law requires that every employer deduct payroll taxes from their employee’s gross salaries the employee receives their paycheque. The employer needs to follow various tax regulations in order to make any deductions from the employee’s pay. Some common mandatory deductions are:
● Government income taxes
● Student loan repayments
● National insurance deductions
For mandatory deductions, the employee cannot choose how much the employer will deduct from their paycheque, because the employer is following what is established by law. To keep you updated on the contributions, the employee will need to check their payslip, and if there are any doubts, we advise that the employee ask your employer about them.
Every employee will have a tax code, which will inform the employer of how much needs to be deducted in terms of PAYE. One example is individuals who have a single job or pension and are categorised under tax code 1150L, meaning that they can earn up to a maximum annual gross salary of £12,500 before they can start paying tax. It’s essential to ensure that the tax code is correct to avoid paying either excess or too little tax.
Once one starts earning more than £12,500 per annum, the HMRC will start deducting a percentage of the income above this amount earned; the percentage will depend on how much one will earn per year. You can find several percentage rates of income tax that can be applied to taxable income:
● People who earn between £0 and £12,500 receive a 0% rate of tax since this is considered to be their personal allowance.
● The basic tax rate then stands at 20%, and it applies to all citizens earning between £12,500 and £50,000 per year.
● People who earn between £50,001 and £150,000 receive a 40% rate of tax, which is considered to be higher rate.
● The additional rate, on the other hand, stands at 45% and applies to people who earn over £150,000 per year.
For more information about our services, please feel free to contact our direct line 020 7183 0309 or send an email to payroll@littleoneslondon.co.uk
What are the Voluntary payroll deductions that can be made?
The employer is not allowed to take any voluntary payroll contribution from their employee’s gross salary without the employee’s permission in writing. The employer can agree to help with these contributions in a certain way. Some of the common voluntary deductions that might be seen on a payslip include:
● Charitable contributions
● Life insurance premiums
● Health insurance premiums for vision, dental and other medical coverage
● Certain retirement earnings
● Employer-specific deductions
What are the benefits of discussing gross salary from the start?
The main benefit of talking about gross salary from the first steps (the job description, to the interview to finish with the job offer) is that the employer will know how much they are paying in total for hiring a nanny, housekeeper or any private staff employee. The employee will get a clear message that their employer is willing to pay for the employer’s portion of their taxes, NI contributions and pension.
It is important that the employer pays for all their obligations to the HMRC and pension scheme, so the nanny or housekeeper is protected by law; it also makes it easier for the employee to apply for any loan, because the banks can check all records.
How can I calculate my gross and net salary?
If a nanny has been given only either the Gross or Net Salary, and they need to know the other, then they can use either the Gross-to-Net Calculator or the Net-to-Gross Calculator.
These calculators may not be needed, as most employers will provide the gross-to-net calculations according to how the employee wishes to see them. To avoid misunderstanding, the employer should specify the type of income they wish to offer in the employment contract.
Nanny Payroll, Tax and HR Services
We have been helping families for over 15 years with their nanny payroll needs. Providing complete management of your payroll responsibilities as a nanny employer by setting up your PAYE scheme, providing payslips and ensuring you never miss a payment to HMRC.
You have found you Nanny/Housekeeper but now how do you deal with your Nanny’s Payroll and Tax Admin?
Our nanny payroll and tax team are experts. They will provide you efficient and affordable nanny payroll and tax services, with access to our HR line.
Let us handle the hard work of sorting your nanny’s payroll and tax admin
Our Nanny and Housekeeper Payroll Team is here to take care of the hard work with your nanny tax and payroll, to ensure all the t’s are crossed and i’s are dotted, so you can focus on what’s important to you. Our payroll department is able to assist you with paying your nanny’s tax by:
● Registering you as employer
● Setting up your PAYE scheme
● Providing monthly/weekly payslips for your nanny
● Providing quarterly reminders of how much Income Tax and NIC is due for your nanny to HMRC and how to pay these
● Keeping tax records on your nanny’s behalf
● Assisting you with filing an employer’s annual tax return
● Keeping complete Payroll records
● Providing you with access to our HR Service
● Keeping you up to date with tax rates and other changes that may affect your employment
● Freezing your subscription if you stop your employment for a period of time
● Helping you with any issue that may arise regarding your employment, such as sickness, maternity etc.
We also recommend that new employers purchase employer’s liability insurance, as this is a legal requirement for all employers in the UK.
We understand that you have hired help around the home, because your daily life requires your attention to be elsewhere. Let Little Ones ease the load with our nanny payroll expertise.
Do you have any more questions?
If you would like more information on the other Little Ones Payroll Services, one of our team will be able to assist with this. Contact us today for a no-obligation discussion about your options.
If you are just starting the process, or are still finding the right Nanny, Housekeeper or Au Pair for your family, take a look at our candidates who are available now, and our team of consultants can provide you with more information.
For more information about their services, please feel free to contact our direct line 020 7183 0309 or send an email to payroll@littleoneslondon.co.uk