By agreeing a net wage the employer is agreeing to pay all tax, whatever it may be. In other words an employee on a net wage agreement will always take home the same amount. This may be good for them; however, for the employer it could prove to be a costly decision.

If you agree a net salary of £300 per week the employee's gross salary would be approximately £390*, but in addition to the employee's tax and NI the employer must also pay employer's NI contribution, which in this instance would be approximately £37, bringing the total cost to £427. The difference between the agreed net pay and the real cost is 42%. For many employers that is too much, and they may realise they can't afford to employ.

If the employee is not on a standard tax code or there is unpaid or underpaid tax from previous employment, it could become even more expensive. To read more about the pitfalls of agreeing a net wage from an employer's point of view, please click here.

*tax year 2008/2009