What is a Gross Salary?
A gross salary is the amount an employee earns before any deductions such as tax, NI, pensions and student loans are removed.
What is a Net Salary?
A net salary is the amount an employee will be paid after any deductions are made; the amount going into the employee’s bank account.
Most salaries in the UK are agreed in gross terms, but in the domestic arena a net salary is sometimes requested. At Stafftax we encourage an understanding of both types of salary. However, we recommend that a gross salary is agreed and stated in the Employment Contract as agreeing a gross salary has many benefits for both employer and employee:
- If there are certain unexpected expenses, such as unpaid tax from a previous job, a higher tax rate due to the employee having another job, or student loan repayments, the employer's costs will not be affected as they will come out of the agreed gross salary.
- You can accurately work out any additional expenses that are based on the gross salary, such as employers National Insurance contributions and employers workplace pension contributions.
- Agreeing a gross salary ensures that you are only paying the employer's contribution to the employee’s pension. Agreeing a net salary will mean that you pay both employee’s and employer’s contribution.
- Increases in tax and NI thresholds will not affect your costs as an employer.
For the Employee
- A gross salary agreement means the employee will receive an increase in their net pay when the Personal Tax Allowance is increased - which usually happens annually.
- Our 2016 wages survey revealed that employers were becoming more aware of the importance of agreeing a gross salary. This could mean that they would be more likely to employ somebody who will agree a gross salary rather than a net salary.
- The rest of the UK (including HMRC) talk in terms of gross. When operating in the financial world, such as when applying for loans or mortgages, banks will usually ask for proof of gross salary. A net salary this means that the gross salary may be subject to change and this uncertainty may cause problems.
At Stafftax we have salary calculators that will give you an estimated conversion of your salary from gross to net and vice versa. If you would like any further advice you can always contact us, we are always happy to help!