Do you know the difference between net and gross?
When it comes to jobs in the domestic household sector it is really important to be clear on this. I regularly explain this to both clients and candidates so I thought it might be helpful to jot this down, along with some important reasons on why everyone needs to be clear what is being discussed.
Simply put gross is the complete sum of money including any taxes and net is the sum of money minus any taxes payable.
When we talk about net and gross in terms of salary this can get a little confusing so bear with me as we work our way through this. My hope is that after you read this you will have the knowledge you need. As the saying goes “knowledge is power”.
A gross salary is the figure you will see on most adverts for office jobs, jobs in retail and industry. There are very few sectors that advertise jobs in net and there are some very good reasons for doing this.
Why go gross?
It makes it easy to compare all jobs what ever profession or field it is in.
Specifically in the UK when the government changes the tax free allowance which has happened each year the employee see the benefit rather than the employer. If a position is paid in net the net amount will not change at all no matter what happens to tax.
What is a Gross Salary?
A gross salary is the total sum including in the UK, national insurance, income tax and employees work place pension contributions. This is the total sum before any tax or mandatory deductions are made. Mandatory deductions can include the following, student loan repayments, outstanding tax, debt repayments.
What is a Net Salary?
Do you know your personal tax code and what your tax free allowance is? Well this is where it gets a bit confusing so for simplicity I am going to be really rather general, but please stick with me. Everyone who isn’t on an emergency tax code in the UK has a personal allowance calculated by the HMRCS. This takes into account all manner of things such as if you are provided with a car by your employer. If you have previously under paid tax on the amount you have earned. Any benefits such as health insurance, gym membership or travel card will all impact on the amount of tax you have to pay. As will how many jobs you work at any one time. So everyones tax varies to some degree.
In the UK a current employer is responsible for collecting tax and mandatory payments from all employees.
An employer taking on a new member of staff with an agreement in net is potentially walking into a massive unknown bill as they become liable for any previously unpaid tax and any debt repayments. So the employer has to foot the cost as the member of staff must receive the full net, take home pay.
Going Gross is a Good Deal for Everyone!
An employer taking on a new member of staff on a gross salary is able to budget as they already know the total cost of employing them. This also works in the employees favour as any reduction in tax they will see reflected in an increase in their pay, on a net agreement they would not.
If you employ a member a staff a great way to ensure your tax responsibilities are taken care of for you is to employ a payroll company such as StaffTax or NannyTax to act on your behalf. They can do all the necessary work for you and advise you further.
Just remember – Go Gross!
Polo & Tweed are an international domestic staff recruitment agency, who place staff in private homes around the world. If you are looking to find a new member of staff to fit with your family or are looking for a position working for the right family Polo & Tweed would love to help. Please do get in touch with us here or call on +44(0)203 858 0233 and speak with one of our consultants.