- The true cost of an employee is their gross salary plus employer NI at 15% above £5,000, minimum pension contributions and other on-costs.
- Employment Allowance can wipe out up to £10,500 of your employer NI bill each tax year if you qualify.
- A £30,000 hire costs a typical small employer well over £30,000 once NI and pension are added, though the allowance can bring the NI element to nil.
Employee Cost Calculator UK 2026/27
How much does an employee really cost? Enter a salary to see the full picture, employer NI, pension, and hidden costs that add 15-20% on top for 2026/27.
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Cost breakdown
The cost of employing someone in the UK is usually 15% to 20% more than their gross salary once you add employer National Insurance, pension contributions and other statutory on-costs.
So a £30,000 hire rarely costs you £30,000. Budget closer to £34,000 to £35,000 a year before you factor in one-off setup costs like equipment and recruitment.
The good news? A lot of that gap is predictable, and getting it right is exactly what a payroll management service is built to handle.
What does it really cost to employ someone?
The true cost of employing someone is their gross salary plus every statutory cost you carry on top, which for most small employers adds roughly 15% to 20% to the headline wage.
Those on-costs fall into two groups. There are the mandatory ones you can’t avoid, and the optional or one-off ones that vary hugely depending on the role.
Here’s the mandatory shortlist:
- Employer National Insurance at 15% on earnings above £5,000 a year
- Minimum workplace pension contributions of 3% on qualifying earnings
- Paid holiday, at least 28 days a year for a full-time worker
- Statutory Sick Pay when an employee is off ill
- Employers’ liability insurance, a legal requirement for almost every business with staff
Salary and these on-costs are the numbers you can plan around. Everything else, recruitment fees, kit, software, sits on top and depends on how you hire.
If you want the wider picture on what a company spends each year, our guide to the cost of running a limited company puts payroll in context.
How much is employer National Insurance?
Employer National Insurance is charged at 15% on everything an employee earns above the secondary threshold of £5,000 a year, and there’s no upper limit.
That threshold matters. It dropped from £9,100 to £5,000 in April 2025 and stays at £5,000 for 2026/27, so you now pay NI on a much larger slice of every salary. The rate also rose from 13.8% to 15% at the same time.
The maths is simple once you know it. Take the gross salary, subtract £5,000, then multiply by 15%.
Gross salary | Earnings above £5,000 | Employer NI at 15% |
£25,000 | £20,000 | £3,000 |
£30,000 | £25,000 | £3,750 |
£50,000 | £45,000 | £6,750 |
Unlike employee NI, there’s no ceiling on the employer side. A higher earner keeps costing you 15% on every extra pound, so senior hires carry a proportionally bigger NI bill. Our employer NI contributions guide walks through category letters and directors’ NI if you need the detail.
Do younger workers and apprentices cost less?
Employees under 21 and apprentices under 25 come with a genuine NI saving, because you pay 0% employer NI on their earnings up to £50,270 a year.
That’s a real difference for a lower-paid role. A 20-year-old on £24,000 generates no employer NI at all, where a 30-year-old on the same salary costs you £2,850. You’ll need the right NI category letter on their payroll record to apply it, which our PAYE reference and employer setup guide covers.
What pension contributions must I make?
Under auto-enrolment, you must pay a minimum of 3% into a workplace pension for eligible staff, calculated on their qualifying earnings.
Qualifying earnings are the band between £6,240 and £50,270 for 2026/27, not the whole salary. So you contribute 3% only on the pay that falls inside that band, which softens the cost at both the low and high ends.
The total minimum contribution is 8%. You cover at least 3% and the employee makes up the rest, usually 5% including tax relief.
Take a £30,000 salary. Qualifying earnings are £30,000 minus £6,240, which is £23,760. Your 3% share works out at around £713 a year.
Eligible workers are those aged 22 to state pension age earning at least £10,000 a year. You can offer a more generous scheme based on full salary rather than the qualifying band, but the 3% minimum is the floor.
What is the Employment Allowance and how much does it save?
The Employment Allowance lets eligible employers cut their annual employer NI bill by up to £10,500 for 2026/27, and for many small businesses it removes the NI cost of a first hire completely.
It’s not paid as a refund. The employment allowance is applied against your employer Class 1 NI as it falls due, reducing what you owe each pay run until the £10,500 is used up.
The allowance doesn't apply automatically. You have to claim it each tax year through your payroll software, so a fresh claim at the start of every April is worth building into your routine.
A few eligibility points catch people out:
- A company whose only employee is a director earning above the threshold can’t claim
- The old £100,000 prior-year NI cap has been removed, so employers of any size can now qualify
- Connected companies and charities share a single £10,500 allowance between them
For most genuine small employers with at least one non-director employee, though, the allowance is straightforward and valuable.
Worked example: the true cost of a £30k hire
A £30,000 employee costs a typical small employer around £34,500 a year before Employment Allowance, and closer to £30,700 once the allowance wipes out the NI.
Here’s how it stacks up:
Cost element | Amount |
Gross salary | £30,000 |
Employer NI at 15% on £25,000 | £3,750 |
Workplace pension at 3% of qualifying earnings | £713 |
Total before Employment Allowance | £34,463 |
Less Employment Allowance (up to £10,500) | -£3,750 |
Total after allowance | £30,713 |
So the salary is only ever part of the picture. Even after the allowance strips out the NI, the pension contribution still adds to your real cost, and holiday cover, sick pay and insurance sit on top of that.
On-costs like these are why cash flow planning matters when you scale. Our payroll for limited companies guide shows how the moving parts fit together across a year.
What about one-off and hidden costs?
Beyond the statutory figures, a new hire brings setup costs that can add 20% or more to the first-year total, especially recruitment and equipment.
These vary too much to give a single number, but the common ones are worth budgeting for:
- Recruitment, from a few hundred pounds for a job board to 15% to 25% of first-year salary through an agency
- Equipment and IT, often £1,000 to £2,500 for a laptop and peripherals
- Software licences, roughly £500 to £2,000 per user a year
- Office space, if you rent desks rather than work remotely
If you’re weighing up a first hire versus staying lean, our guide on whether a sole trader can have employees is a useful starting point.
Statutory Sick Pay and holiday: the costs that are easy to forget
Sick pay and paid holiday are both baked into the real cost of a hire, and the sick pay rules changed significantly in April 2026.
Statutory Sick Pay is now £123.25 a week, or 80% of average weekly earnings if that’s lower. From 6 April 2026 it’s paid from day one of sickness, the three waiting days are gone, and the Lower Earnings Limit has been removed, so every employee qualifies regardless of what they earn.
Paid holiday is the other cost hiding in plain sight. A full-time worker is entitled to at least 28 days a year, and that time is paid at their normal rate, so it’s already sitting inside the salary you budget rather than being an extra line. Reporting any taxable benefits you provide is a related duty, which our P11D submission guide explains.
How Sleek helps with the cost of employing someone
Working out employer NI, pension contributions, the Employment Allowance and changing sick pay rules for every pay run is exactly where small employers lose time and make costly mistakes.
Sleek’s payroll management service handles all of it, applying the right thresholds and reliefs automatically and filing to HMRC on time, so your employer costs stay predictable and correct.
If you’d rather hand over the wider numbers too, our accounting services keep payroll joined up with the rest of your books.
Disclaimer: The preceding information is not legal advice. This content is aimed to provide general guidance. For more formal or legal advice, contact Sleek directly.
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FAQs on the cost of employing someone in the UK
Is the cost of an employee always more than their salary?
Yes. Every employee costs more than their gross salary once you add employer National Insurance, pension contributions and paid holiday. For most small employers the extra comes to 15% to 20% of salary in ongoing costs, rising sharply in year one if you factor in recruitment and equipment. The Employment Allowance can offset the NI element.
How much does it cost to employ someone on minimum wage?
It depends on their age and hours, but expect roughly 10% to 15% on top of their wages for NI and pension. Under-21s carry no employer NI up to £50,270, which lowers the cost of younger minimum wage staff considerably. Pension contributions only apply once they earn above the £10,000 auto-enrolment trigger.
Do I pay employer NI on every employee?
No. You only pay employer NI on earnings above the £5,000 secondary threshold, and you pay nothing on under-21s or apprentices under 25 earning below £50,270. For everyone else it’s 15% on earnings above £5,000, with no upper limit, though the Employment Allowance may cancel out the bill for smaller employers.
Can the Employment Allowance really reduce my NI to zero?
Yes, for many small employers it can. The allowance covers up to £10,500 of employer NI a year, which is more than the NI due on a single £30,000 salary. Once you’ve used the full £10,500 across all staff, you pay employer NI as normal for the rest of the tax year. Single-director companies can’t claim.
Do I have to pay a workplace pension for part-time staff?
It depends on their earnings. You must auto-enrol any worker aged 22 to state pension age earning at least £10,000 a year, part-time included. Those earning between £6,240 and £10,000 can ask to opt in, and you’d then contribute on their qualifying earnings. Below £6,240 there’s no employer contribution duty.
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How much should I budget for a new hire in the first year?
Budget 1.5 to 1.7 times the gross salary for the first year if you’re recruiting and equipping from scratch. Ongoing costs settle at 15% to 20% above salary, but recruitment fees, IT kit and software licences push the first year higher. Planning for that spike upfront avoids a cash flow shock a few months in.
Is Statutory Sick Pay an extra cost on top of salary?
Yes, but it’s usually modest. SSP is £123.25 a week and, since 6 April 2026, is paid from day one of sickness with no earnings threshold. You fund it yourself, as most employers can no longer reclaim it from HMRC. For short, occasional absences the cost is small, though frequent absence across a team adds up.
