Gross vs Net Salaries
Gross Pay is the total amount before deductions
Net Pay is the amount actually received by the Employee, after deductions
All professions agree Gross Pay and we believe Employers and Employees in private environments should be no different. It has been the norm for private employers and Employees to talk in Net weekly salaries, but ideally these should only be used as a guide to help Employees understand what they may roughly ‘take home.’
Greycoat Lumleys encourages all Employers and Employees to confirm all salaries as Gross Pay. 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. 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 ‘domestic staff’ do not normally fulfil the HMRC’s definition of self-employment and the responsibility is with the Employer to declare tax and NI. Visit the link to HMRC to find out more.
Benefits to Employees
- An Employee will benefit from the personal tax free allowance increases which the government have pledged to increase over the next few years. Those on a Net salary have actually lost out over the last few years
- You ensure that all your salary is declared in full – when Employers are aware of the additional costs they could be tempted to not declare your salary or declare only part of it
- 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 and not your Employer
- It could be easier to apply for a mortgage
Stafftax offers a comprehensive, user friendly Payroll Service and we recommend any Employers contact them with any specific tax related issues.