How Much Does It Really Cost to Employ Someone in the UK?

If you’re thinking about taking on an employee with a salary of £30,000, it’s easy to assume that employee will cost your business £30,000 a year.

Unfortunately, it’s not quite that simple.

Salary is only one part of the cost of employing someone. There is also Employer National Insurance, pension contributions and a number of other costs that aren’t always obvious when you first decide to recruit.

So, before you advertise that new role, what should you budget for?

Let’s start with the salary

We’ll use an annual salary of £30,000 as our example.

This is the employee’s gross salary before their own Income Tax, National Insurance and pension deductions.

Income Tax and employee National Insurance are deducted through payroll from the employee’s gross pay, so they aren’t additional employment costs for the business.

However, there are costs that the employer may pay on top of that £30,000.

Employer National Insurance

For the 2026/27 tax year, employers generally pay National Insurance at 15% on earnings above the £5,000 Secondary Threshold.

For a standard employee earning £30,000:

That’s a potential additional £3,750 per year before we’ve considered anything else.

Workplace pension contributions

If your employee is eligible for automatic enrolment, you’ll normally also need to contribute to a workplace pension.

Under the standard minimum automatic enrolment basis, the employer contributes at least 3% of qualifying earnings.

For 2026/27, the qualifying earnings band runs from £6,240 to £50,270.

For our £30,000 employee:

So our minimum employer pension contribution is approximately £713 per year.

Your pension scheme may operate differently or provide contributions above the statutory minimum, so this figure won’t apply to every employer.

So what does our £30,000 employee actually cost?

Using the standard rates, and before taking account of any Employment Allowance or other reliefs, our direct annual employment cost looks like this:

So a £30,000 salary could mean a standard direct employment cost of around £34,463 per year before any available reliefs are taken into account.

For an eligible small employer claiming Employment Allowance, the amount actually paid in Employer National Insurance could be considerably lower.

And we’re not finished yet.

What about holiday pay?

Employees are entitled to paid annual leave.

For a full-time employee working five days per week, the statutory minimum is generally 5.6 weeks’ paid holiday per year, which equates to 28 days. Bank holidays can be included within that entitlement.

For a salaried employee, you shouldn’t simply add another 5.6 weeks of salary to the £34,463 above — their salary already covers their paid annual leave.

However, there can still be a cost to the business.

If work needs to be covered while that employee is on holiday, you might pay overtime, bring in temporary cover or have another employee take on additional work.

And then there are the costs that are harder to calculate

The cost of employing someone isn’t just what appears on the payroll.

Before your new employee has even completed their first day, you may already have spent time and money on:

• Advertising the vacancy or using a recruitment agency
• Reviewing applications and CVs
• Interviewing candidates
• Preparing an employment contract and new starter documentation
• Completing right-to-work checks
• Setting the employee up on payroll
• Setting up pension records
• Purchasing equipment
• Providing software licences, systems or a company phone
• Induction and training
• Management time during their first few weeks and months

Some businesses will spend very little on recruitment. Others may spend thousands.

That’s why it isn’t sensible to add an arbitrary recruitment figure to our £34,463 example.

The important point is that the salary alone doesn’t tell you the full cost of taking someone on. If you’re planning your first hire, our guide to hiring your first employee and registering as an employer with HMRC may also help.

Don’t forget the ongoing responsibilities

Employing someone also brings responsibilities that aren’t always easy to put a price on.

You’ll need to manage things such as holiday, sickness absence, payroll, pension duties, performance, training and employee relations.

You’ll also need appropriate employment documentation and processes in place.

None of this means employing someone is a bad idea. Growing your team can be one of the best investments you make in your business.

But it’s worth understanding the commitment you’re making before you recruit.

Before you recruit – do you actually need another employee?

This is a question that’s worth asking.

If you have enough ongoing work for someone and need them as a permanent part of your team, recruiting an employee may absolutely be the right decision.

But what if you don’t need someone for 35 or 40 hours every week?

Perhaps you need someone to process your payroll — outsourced payroll support may be enough without creating a full-time role.

Maybe your HR paperwork needs sorted.

Perhaps your admin is starting to take over your working week.

Or maybe you need specialist help occasionally but couldn’t justify employing someone specifically to provide it.

In those circumstances, outsourcing some of that work may be worth considering.

Instead of taking on the ongoing costs and responsibilities associated with another employee, you can potentially pay for the support you need, when you need it.

It won’t be the right solution for every role or every business — but it’s worth comparing the options before automatically deciding that recruitment is the answer.

Employee or outsourced support?

If you need a full-time member of your team, employing someone is likely to make sense.

If you need a few hours of specialist support each week or month, outsourcing may give you access to the skills you need without creating a full-time position.

Understanding the true cost of employment helps you make that decision with your eyes open.

Figures in this article are based on standard 2026/27 rates and are provided as a general illustration only. Actual employment costs will depend on individual circumstances, pension arrangements, National Insurance category and eligibility for Employment Allowance or other reliefs.

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