1. You take on the same responsibilities as a commercial employer unless they are self employed (see Self Employed Versus Being Employed)
2. You must administer PAYE (Pay As You Earn) tax as well as both employee and employer National Insurance contributions.
3. You must provide your employee with a payslip every time they get paid.
4. You must provide your employee with a contract within two months of their start date.
5. You should take out appropriate insurance – Employers Liability Insurance is compulsory if you are an employer.
6. You must pay at least the National Minimum Wage, unless your employee lives in your home with you.
7. You must give your employee at least 28 days a year paid holiday, pro rata (ie proportionally less if they do not work full time for you).
8. You must pay statutory sick pay, maternity and paternity pay – maternity and paternity pay can be claimed back from the government.
9. You must follow the law when it comes to terminating employment, whether through firing somebody or through redundancy.
10. You must pay tax on Benefits in Kind – ie gifts to your employee or ‘perks’ such as bonuses, a car or accommodation.
04 December 2015
Gross pay is your employee’s take-home salary plus income tax, employee’s national insurance and any other payments that come out of their salary – such as employee pension contributions, student loans, tax on benefits, tax owed from previous jobs, etc.
Net pay is the money that your employee takes home (or is put into their bank account) every pay day.
The main point is that you should always agree a gross salary with your employee and put that in the contract. Your employee may want to know what their net pay is, and that’s fine, we can work it out and tell them, but this amount will change if there are changes to their tax position, pension, etc.
Agreeing a gross salary will protect your costs so that you know what you need to pay out each month, and if the amount payable to the government/pension changes it will come out of your employee’s take-home or net pay rather than adding to your costs.
So hopefully the benefits to the employer of agreeing a gross salary are clear – it protects your costs – but there are also advantages to the employee. Every year there is an increase to the Tax Free Allowance (the amount of pay a person gets to keep before the government starts taking tax). This means an annual increase to the employee’s take-home pay which they would not get if they had a net salary agreement. If they had a net salary agreement they would get the same amount regardless of how much tax is taken, so in that case the benefit of the Tax Free Allowance increase would go to the employer.
01 December 2015