True Cost of an Employee Calculator 2025/26

Understanding the True Cost of Employment in 2025/26

When budgeting for new hires, many employers focus solely on the salary figure. However, the true cost of employing someone includes several additional mandatory and optional costs that can add 15-30% or more to the base salary.

Mandatory Employer Costs

Every UK employer must pay these costs on top of salary:

• Employer National Insurance: 15% on earnings above £5,000/year
• Workplace Pension: Minimum 3% of qualifying earnings for auto-enrolled employees
• Employers' Liability Insurance: Legally required for most employers

Example: True Cost of a £30,000 Salary

Ways to Reduce Employment Costs

Employers can legitimately reduce their costs through:

• Employment Allowance: Save up to £10,500 on your NI bill
• Salary Exchange: Both employer and employee save NI when pension contributions are exchanged for salary
• Hiring Under-21s: No employer NI on earnings up to £50,270
• Apprenticeships: Similar NI benefits plus potential funding for training

Hidden Costs to Consider

Beyond the statutory costs, employers often overlook:

• Recruitment and onboarding costs
• Equipment and workspace
• Training and professional development
• HR and payroll administration
• Sick pay and absence costs
• Benefits and perks