Net or not

From the employee's point of view

When it comes to negotiating a salary we all know that the taxman will take a fair chunk of it, and we learn quickly enough what our gross annual salary means in real terms: how much we have left to spend at the end of every pay period. So why is it that so many domestic employees only want to discuss their pay in net terms? And do they know what they stand to lose?

The Government regularly increases the personal tax-free allowances and has cut the basic rate of income tax several times in recent years. With a net-pay deal the employer does not have to pass any potential savings on to their employee. Only employees on a gross wage will automatically receive the benefit of any cuts by paying less tax and NI.

Many first-time domestic employers don't understand that they must pay tax and NI on top of a net salary, and when they realise the true employment costs it may become clear to them that they cannot afford it. Or, perhaps even worse, they decide to only declare part of the salary (in order to save some money). Neither situation is of course ideal, but by only having part of their salary declared the employee will not only be entitled to less if they want to apply for a mortgage or a loan it will also have disadvantageous effects on their pension and other entitlements, such as statutory maternity pay (SMP).

But perhaps just as importantly a gross wage enables the employee to compare their salary with other professions in the UK, thereby giving them an opportunity to assess their earning power and consider their career options.