Net versus Gross
Should I pay gross or net salary?
Historically, the world of nannies and domestic service have talked in terms of a net weekly/hourly rate. This approach is fraught with issues for both Employers and Employees. Net hourly/weekly salaries should only be used as a guide to help candidates understand what they may roughly “take home.” Most other professions agree gross salary and we believe that Nannies and Domestic Service should be no different. We are encouraging all Employers and Employees to talk gross and confirm all salaries as gross when the offer of engagement is made.
HomeOrganisers can provide a gross pay equivalent figure for any net pay amount. Please note that this is only valid at the time the figure is quoted and the equivalence between the two will be lost as soon as tax rates change or the Employee works fewer or more hours. We therefore advise that under no circumstances should both a gross and its equivalent net figure be quoted in the contract. If a decision to use gross pay is taken, all future discussions with the Employee must be in gross pay terms and no attempt made to relate this back to an original net hourly or daily rate.
Gross Pay has deductions made from it for National Insurance Contributions and Income Tax so the Employee will actually receive less than this figure. Net Pay has no deductions made from it so the Employee actually receives this amount. Tax and NI (both Employee NI and Employer NI) will then be paid by the Employer on top of this, so the total cost to the Employer is more than the net figure.
Why should I agree a Gross Salary?
A gross annual salary benefits both the Employer and the Employee.
Benefits to Employers
- The costs are fixed - agreeing a net salary may mean fluctuating costs and in particular an Employer may end up repaying any backdated tax owed by the Employee plus any student loan repayments where applicable!
- Understand the true cost of the employment - the only addition will be Employer’s National Insurance. On a net salary you don’t know the full cost as it depends on the individuals’ tax code.
- Complying with Employer’s responsibilities
- No confusion as to whether your person is “self-employed” and whether they are paying their own taxes. Please note nannies and most domestic staff do not normally fulfil HMRC definition of self-employment and the responsibility is with the Employer to declare tax and NI.
Benefits to Employees
- An Employee will benefit from any personal tax free allowance increase. There have been increases over the past few years and those on a net salary have actually lost out.
- You ensure that all your salary is declared in full
- No confusion over being seen by the Employer as “self-employed” and thus being paid a salary from which you were then expected pay your own tax.
- You receive any tax refunds due.
- It may be easier to apply for a mortgage and other credit.
Remember - Always agree a Gross Wage!