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. But there are considerable financial implications at stake for both employer and employee.
Domestic employers often agree a net (i.e. take-home) wage with their staff, but in reality any employee is always paid a gross salary, with tax and National Insurance Contributions deducted and paid to HMRC on a quarterly basis by the employer on behalf of the employee. Although many employers tend to look on this as an additional cost, it is actually part of the gross wage. On top of the gross wage, employers also have to pay an Employer's National Insurance Contribution for each employee.
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 It is surprising that this outdated arrangement has not yet been dispensed with, as there are considerable financial implications at stake for both employee and employer.
- By agreeing a net pay you are essentially writing a blank cheque - committing to pay all your employee’s tax and National Insurance contributions, irrespective of any changes in the legislation and without taking into account their individual tax code or tax position
- There are several reasons why an employee’s tax code can vary from a standard tax code; for instance, if they have two or more part-time jobs and their other employer is already using up their personal tax-free allowance in their wage calculations, then you, the second employer, must pay tax from the first penny the employee earns, since the personal tax-free allowance can only be claimed once. Another reason for an unusual tax code would be if HMRC were collecting unpaid or underpaid tax from previous employment
- An increasing number of state benefits and tax reliefs are paid through the payroll mechanism as an offset to employee tax and NI liability. Any taxable benefit provided by the employer, such as the personal use of a car, will increase costs if they are based on a fixed net wage
- If your employee has a student loan you will be responsible for paying this if you agree a net salary with them
- The difference between a net pay and the actual cost of employing a domestic employee 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 equally unfavourable to your employee.
When you employ domestic staff in the UK you not only have to find the best possible candidate for your household, you also become an employer. As such you take on a host of responsibilities. For instance, you must draw up an employment contract with your employee within eight weeks of their start date and give them a payslip every time they get paid. It is also a legal responsibility that you have employer’s liability insurance.
In addition you must also make sure that you pay your employee at least the national minimum wage or above, so you need to have a good understanding of the basics of employment law. It's surprisingly easy to make mistakes when you're juggling issues such as holiday entitlement, statutory sick pay, benefits in kind, statutory maternity pay and redundancy pay. At Stafftax we can take care of the payroll aspects for you so you can concentrate on the your family, your household and the more important things in life.
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Current rates and thresholds
Current tax thresholds
Your employer must register and deduct NI from your salary if you are paid £153 or more per week. Your employer must also register if you have another job, even if you are paid below the threshold.
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