What Is the Difference Between Gross and Net Pay?
How to figure out the best pay rate when you're a nanny or other type of caregiver.
Julia Quinn-Szcesuil, Contributor
Articles> What Is the Difference Between Gross and Net Pay?
money in a net

When you get any job, one of your first questions is often "How much money will I bring home?" Take home pay for caregivers can vary widely, but should always be based on gross pay -- not net pay.

When negotiating for a salary, you need to take the big picture into account (gross pay) and not focus just on the dollar number you want to bring home (net pay). The total amount of what you get paid every year is your gross pay (before taxes or benefits are taken out) and the amount in your weekly paycheck that you can put in the bank (or pay bills with!) is your net pay.

"Everybody in the professional world negotiates salary based on gross pay and nannies should as well, especially as nannies are recognized more and more as a profession and not just referred to as babysitters," says Erin McNeill, board member of the Massachusetts Alliance of Professional Nannies. (This holds true for all types of caregivers!)

But you need to understand the important differences between gross pay and net pay and what each number represents. Here are four comment questions people ask.

  1. How Is It Used?
    "Everyone has to understand that all wages are always reported as gross wages," says Stephanie Breedlove, vice president of Care.com HomePay. Negotiating for bringing home a set dollar amount every week isn’t how the working world operates, she says.

    Even though a gross pay number will be larger, it takes into account being paid legally, with taxes being taken out. But it also represents protection for both you and your employer. Paying taxes on your salary means you are both protected from potential tax evasion charges, and it also means you're paying into certain benefits (unemployment, disability, Social Security, etc.) that you might need someday.

  2. What Number Is Best?
    "Both parties need to negotiate on gross pay," suggests Breedlove. But to do that correctly and without shortchanging yourself, you need to understand how taxes will change the amount of money in your weekly paycheck.

    McNeill says the gross pay number helps you see the entire amount. "It's the professional way to handle contract negotiations between the nanny and family," she says. "The gross salary should be the figure to base raises and other pay adjustments off."

  3. How Can I Figure the Numbers Out?
    "The absolute easiest way to have this discussion is to use a tax calculator," says Breedlove. This tool can show you numbers based on salary and taxes to give both caregiver and employer an idea of what a final paycheck might look like. "It clarifies the situation," she says.

  4. Then What?
    A pay stub example is a good starting point for you to go to your employer and negotiate. If your gross pay, without taxes, would give you your goal of $500 per week, for example, understand that will change with taxes. Your net pay, therefore, will be lower -- and you can explain that during negotiations.

    Then include any of these numbers in your contract. Learn about why you need a contract »

The process might be tougher, but once you understand the differences between gross and net pay, you will be on more professional footing to ask for what you need and what you're worth. Remember, being paid properly is the legal way. It is also for your professional benefit and your own long-term benefit to be paid this way, says Breedlove.

Julia Quinn-Szcesuil is an award-winning freelance writer and a mom to two girls. She lives in Massachusetts and has written for local and national publications.

Your Next Steps:

* The information contained in this article should not be used for any actual caregiver relationship without the advice and guidance of a professional advisor who is familiar with all the relevant facts. The information contained herein is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for your specific circumstances and may require consideration of other matters.

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(2) Comments
Stephanie Breedlove
Stephanie Breedlove
Hi Ken!

My name is Stephanie Breedlove and I am the head of Care.com HomePay managed by Breedlove & Associates. While our service is extremely comprehensive, there are a couple of options that not every family may elect to take when using our service. I'd like to invite you to call us at 888-273-3356 and our New Employer Orientation team will be happy to break down the service and the cost to you. You can also visit http://www.breedlove.com/Service/Nanny-Tax-Service-Costs.aspx to see the cost on our website.
January 7, 2014 at 10:38 AM
Ken Deprey
Ken Deprey
What is the cost of your payroll service for two employees
January 6, 2014 at 8:42 PM

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