Total Cost of Employee Calculator UK 2026

What is the true cost of employing someone in the UK in 2026?

The true cost of employment typically ranges from 1.25x to 1.5x the gross salary, depending on benefits, overheads, and company size. For a £30,000 salary, expect total costs between £37,500–£45,000 annually. This includes:

• Employer National Insurance (13.8% on earnings above £9,100)
• Employer pension contributions (minimum 3%, often 5–10%)
• Benefits and perks (health insurance, bonuses, company cars)
• Recruitment and onboarding (£3,000–£5,000 per hire)
• Equipment and software (laptops, phones, licences)
• Office space and utilities (desk, heating, internet)
• Training and development budgets
• HR and payroll administration costs

Smaller businesses with lower overheads may see multipliers closer to 1.2x, while larger organisations with generous benefits and higher office costs can reach 1.6x or more. Use our calculator to model your specific scenario.

How much does employer National Insurance cost in 2026?

In the 2026/27 tax year, employer NI is charged at 13.8% on all earnings above £9,100 per year (the Secondary Threshold). There is no upper earnings limit for employer NI — the 13.8% rate applies to all earnings above the threshold.

Example: For a £40,000 salary, employer NI is 13.8% × (£40,000 − £9,100) = 13.8% × £30,900 = £4,264.

Eligible businesses can claim the £5,000 Employment Allowance, which reduces the total employer NI bill (not per-employee, but company-wide). This is particularly valuable for small businesses with one or two employees. Learn more at GOV.UK Employment Allowance.

What other costs should I include when hiring an employee?

Beyond salary and employer NI, you should budget for:

• Employer Pension Contributions: Minimum 3% under auto-enrolment; many employers offer 5–10%.
• Benefits-in-Kind: Health insurance (£1,000–£2,000), bonuses, company cars, gym memberships, travel allowances. Remember, benefits trigger Class 1A NI at 13.8%.
• Recruitment Costs: Job ads, agency fees (15–25% of salary), interview time. Average UK recruitment cost: £3,000–£5,000 per hire.
• Onboarding & Training: Induction programmes, training courses, lost productivity during ramp-up period (often £1,500–£3,000).
• Equipment & Software: Laptop, phone, software licences, IT support (£1,000–£2,000/year).
• Office Space: Desk rental, utilities, heating, internet (£2,000–£5,000/year per employee in city centres; less for remote workers).
• HR & Payroll Administration: Payroll software, HR compliance, right-to-work checks, DBS checks (£500–£1,000/year).
• Insurance: Employer's liability insurance, professional indemnity (spreads across all employees).

Many of these "hidden" costs are fixed or semi-fixed, meaning they add proportionally more cost for lower-paid roles. Plan for a total employment cost multiplier of 1.25–1.5x salary to ensure accurate budgeting.

Can I reduce the cost of employing staff in the UK?

Yes! Here are proven strategies to optimise employment costs without compromising quality:

• Claim the £5,000 Employment Allowance to reduce employer NI bills (available to most small businesses).
• Use salary sacrifice schemes for pensions, cycle-to-work, electric vehicles, and childcare vouchers to reduce both employer and employee NI.
• Offer flexible/remote working to reduce office space costs and attract talent without expensive city-centre salaries.
• Invest in retention — replacing an employee costs 1.5–2x their salary. Improve retention with career development, recognition, and fair pay. Use our Notice Period Calculator to understand notice obligations.
• Streamline recruitment with employee referral schemes, internal promotions, and direct hiring (avoiding agency fees).
• Provide cost-effective benefits like learning budgets, flexible hours, and extra annual leave instead of expensive health insurance.
• Benchmark salaries against industry standards to ensure you're competitive but not overpaying. See our UK Salary Benchmark Tool.
• Consider contractors or freelancers for project-based work. While contractors cost more per day, you avoid NI, pensions, benefits, and overheads. Compare using our Contractor Take Home Pay Calculator.

Small changes — like improving retention by 1 year, claiming Employment Allowance, or using salary sacrifice — can save thousands per employee.

How does this calculator compare to hiring a contractor or freelancer?

Contractors and freelancers typically charge a day rate or project fee that is higher than an equivalent employee's daily rate, but you avoid many employment costs:

• No employer NI (saving 13.8% on earnings above £9,100).
• No pension contributions (saving 3–10% of salary).
• No benefits, training, or equipment costs.
• No recruitment or onboarding expenses (contractors start quickly).
• No office overhead (many contractors work remotely with their own equipment).

Example: A permanent £50,000 employee might cost £62,500 total (1.25x multiplier). A contractor charging £300/day for 230 days (equivalent to full-time) costs £69,000 — higher per-day, but with no benefits, pensions, or overheads, and far greater flexibility.

When to hire contractors: Short-term projects, specialist skills, seasonal demand, or when you need flexibility. When to hire permanent staff: Long-term roles, building company culture, knowledge retention, or when employment costs are offset by lower day rates and greater loyalty.

Use our Contractor Take Home Pay Calculator to model the true cost of contract vs permanent hiring for your business.