Within domestic staff recruitment and employment, it is still surprisingly common for wages to be discussed and agreed on a net (i.e. take home) rather than a gross basis. Whilst it may be helpful for the employee to know how much money they'll have in their pocket each payday, some employers, particularly those employing for the first time, get a false impression of employment costs as they do not realise that there will be Tax and National Insurance Contributions to pay on top of the net wage.
Net, Gross and Total Cost: what's the difference?
The net wage is the take-home pay; the amount the employee receives in their pocket or bank account each payday.
The gross wage is the employee's net pay + Tax + Employee's National Insurance contributions.
In addition to the gross wage, employers have to pay Employer's National Insurance contributions; this is called the Total Cost. So the total cost is the gross pay + employer's NI.
A carer has agreed a net wage of £250 per week. Let's assume this is their only job and they have a standard tax code.
Their gross weekly wage would be approximately £280* per week.
The employer's total cost would be approximately £2291* per week (that's the gross wage plus employer's NI contributions).
(* Figures are rounded up or down to the nearest pound and assume a standard tax code for tax year 2015-16).
Protect Your Employment Costs
When you agree to pay a gross wage with your carer your total costs are protected and you will know exactly how much you are paying each pay period. But by agreeing a net pay you are essentially writing a blank cheque - committing to pay all your carer's tax and National Insurance contributions, including any unexpeced additions.
For example, f your carer had a student loan you would have to pay this if you agree a net salary with them. Also if they owe any additional tax from a previous job you would become responsible for paying that.
The difference between the net pay and the actual cost of employing can be staggering (up to 50% more) and may come as an unpleasant surprise, especially to an inexperienced first-time employer.
A net pay arrangement is also unfavourable to your carer as they would not benefit from any increases in their personal tax-free allowance.