In this section
Benefits of being an employee on PAYE
Your employer's responsibilities
Gross vs. Net Wages
Always insist on a gross wage with your employer
Many domestic employees and domestic agencies agree a net (i.e. take-home) wage with the employer, but in reality you are always paid a gross wage, with tax and National Insurance Contributions paid to the Inland Revenue by your employer on your behalf. Although many employers tend to look on this as an additional cost, it is actually part of your gross wage. On top of the gross wage, your employer also has to pay an Employer‚s National Insurance Contribution.
Domestic employment is probably the only profession left in the UK where wages are still commonly agreed on the basis of net (i.e. take-home) pay. It is surprising that this outdated arrangement has not yet been dispensed with, as there are considerable financial implications at stake. The following points briefly explain why a net pay agreement is disadvantageous to all domestic employees
- The Government regularly increases the personal tax-free allowances and has cut the basic rate of income tax several times in recent years. If you have a net pay deal your employer does not have to pass any of the savings on to you. Only if you are on a gross wage will you automatically receive the benefit of any cuts by paying less tax and NI.
- A gross wage enables you to compare your salary with any other type of employee in the UK, thereby giving you an opportunity to assess your earning power and consider your career options.
- A gross wage agreement is also essential if you want a to get a personal loan or a mortgage, as the figure the bank or building society will be interested in is your gross salary. Similarly, if you want to make sure you are being paid the National Minimum Wage, you need to know what your gross salary is.