Why salaries should always be paid gross not net

Why salaries should always be paid gross not net

Employment in the UK is, with a few exceptions, almost always spoken about using gross salary amounts. However, in the world of domestic and household service the norm for many years has been to talk in terms of net hourly/weekly/monthly rates.
This allows both the employer and employee to know exactly how much money they will be taking home each month and as we are all creatures of habit some people still prefer to refer to net values today.
However, although we all like to know how much we will roughly ‘take home’, there are many good reasons why other industries work with gross pay and Greycoat Lumleys believes that domestic and household service employees and clients should be brought up to date and in line with other industries.
This is why we are encouraging all employers and employees to talk gross and confirm all salaries as gross when the offer of engagement is made. However, to be clear:

  • Net is the workers take home wage, the amount of money which actually goes into their bank account
  • Gross is the amount before any reductions such as income tax, national insurance contributions and student loans

Unfortunately, at the moment many agencies still advertise their jobs in net. This has the knock on effect of those working in the industry presuming this is the way it should be and their employers too.
However, the simple fact is there are many benefits to paying domestic/household staff gross instead of net, including:

Benefits for workers

  • It places everything and everyone on a level playing field and allows for comparison of wages to others. It also makes it easier to compare jobs, rather than if some are advertised net and some gross.
  • An employee will benefit from any personal tax free allowance increases. There have been increases over the past few years, £1,500 in the past 3 years alone and those on a net salary have actually lost out. When paid gross, employees will see a slight increase in their pay each year, assuming the allowance increases; if paid net, it’s the employers which benefit.
  • You will also receive any tax refunds due and not your employer.
  • Gross wages enable better job stability as the employers know how much their employee is costing them from the beginning and they can budget for it.
  • There is 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 and NI contributions.
  • It may be easier to apply for a mortgage and other credit. When it comes to applying for mortgages and loans, banks want to know your gross wage figure and evidence of your payslips. They aren’t interested in net.
  • You ensure that all your salary is declared in full and meet all your responsibilities.

Benefits for employers

  • It is much easier to see the going rate for employing staff and the true costs involved.
  • The costs are fixed, except for national insurance contributions and you are aware of the total cost of employment. When agreeing a net salary your costs may fluctuate depending on an individual’s tax code and you could be liable for repaying any backdated tax owed or student loan repayments.
  • You will be complying with employer’s responsibilities and there will be no confusion as to whether the worker is self-employed. If you employ a member of staff in your household in the UK, you have the same legal responsibilities as a commercial employer and you must operate a PAYE Scheme and pay the appropriate Tax and National Insurance on their behalf.
  • Workplace Pensions and automatic enrolment is now a legal requirement and must be provided by all employers, including domestic/household employers. Employers paying net wages will end up paying both their 1% contribution and their employees 0.8% (increasing to 3% and 4% respectively from April 2019). That’s a potential 7% increase on the cost to you as an employer. Whereas employers paying gross wages will just contribute their 1 - 3%.
  • Gross wage encourages job stability as you know exactly how much you are paying each month. With net wages adding on tax and national insurance, you can easily forget about the added expenses which may result in having to let them go.
  • Each year the tax free allowance increases, when paying net, the employer is seeing the benefit. With gross pay, it is the employee receiving the extra in their pay. This means each year they get a slight pay increase despite the employer paying the same gross wage. At no extra cost to you, your employee benefits and it aids retention.
  • Paying gross wages helps your employee when it comes to applying for mortgages and loans as the bank will want to know their gross wage. The same applies to employers when asked for evidence on how much they spend on childcare.

As you can see, there benefits of paying in gross heavily outweigh the outdated net approach. There are lots of campaigns out there supporting this movement and more and more agencies are getting on board. So, let’s all agree to talk in gross not net!

Our Offices

Greycoat Lumleys London office covers jobs in London, South of England and International
Greycoat Lumleys Buxton office covers jobs in the majority of counties in the North of England and Wales
Greycoat Lumleys Edinburgh office covers jobs in Scotland