True Cost of an Employee Calculator
What a hire really costs once employer National Insurance, pension and the other on-costs are added to the salary, and the hourly rate you need to recover it.
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- 2026/27 rates, reviewed 2nd September 2026
True Cost of an Employee Calculator
Enter your figures to see results.
How much does an employee really cost?
A £32,000 salary costs an employer nearer £39,500 a year once employer National Insurance at 15%, a 3% pension and the laptop, software and training are added: about 23% on top. That works out at roughly £23 for every productive hour, which is the figure to use when you price your work or decide whether a hire pays for itself.
How to use this calculator
- Enter the gross annual salary.
- Set your employer pension contribution and any other annual costs: equipment, software seats, training, benefits.
- Tick the boxes if the employee is under 21 or an apprentice under 25, or if this hire is the one your Employment Allowance covers.
What your result means
How to read the figure, what counts as normal, and what to do about it.
Salary is only part of the bill
A £32,000 salary does not cost £32,000. Employer National Insurance at 15% on everything above £5,000 adds over £4,000; the minimum pension contribution adds nearly £1,000; and the equipment, software, training and space the person needs add more again. The true cost of a typical UK employee is 20–30% above their salary before any recruitment fee, and that is before you allow for the fact that they are paid for 52 weeks but productive for perhaps 44.
This calculator gives the annual figure, the monthly cash cost, and the cost per productive hour, which is the number to use when pricing your services or deciding whether a hire pays for itself.
Employer National Insurance in 2026/27
Since April 2025 employers pay Class 1 secondary NI at 15% on each employee's earnings above a secondary threshold of £5,000 a year (£417 a month). Both figures are unchanged for 2026/27 and frozen until 2028. Before April 2025 the rate was 13.8% above £9,100, so the change added roughly £900 a year to the cost of a £30,000 employee.
Two reliefs soften this:
- Employment Allowance lets eligible employers knock up to £10,500 a year off their total employer NI bill. Since April 2025 there is no upper limit on the size of employer that can claim, but companies where the only employee paid above the threshold is a director cannot.
- Under-21s and apprentices under 25 attract no employer NI on earnings up to £50,270 (the upper secondary threshold). Veterans in their first year of civilian employment and employees in Freeports and Investment Zones have similar reliefs.
Pension and the other on-costs
Auto-enrolment requires a minimum 3% employer contribution on qualifying earnings (between £6,240 and £50,270), with the employee paying 5%. Many employers contribute on full salary or match higher employee contributions; the average employer contribution in the private sector is around 4–5%. Pension contributions are free of employer NI, which is why salary sacrifice arrangements are so widespread: an employee who exchanges £2,000 of salary for pension saves the employer £300 in NI.
Other on-costs commonly forgotten in a hiring decision: statutory sick pay and holiday cover; the Apprenticeship Levy (0.5% of pay bill above £3 million); employer's liability insurance; payroll processing; a desk, laptop and software licences; and the manager's time. Recruitment fees of 15–25% of salary should be spread across the expected tenure.
Worked example: hiring an account manager at £32,000
The role pays £32,000. The company contributes 3% to pension on full salary and estimates £2,500 a year for a laptop, software seats and training. Its Employment Allowance is already used by other staff.
Employer NI = (32,000 − 5,000) × 15% = £4,050. Pension = 32,000 × 3% = £960.
Total cost = 32,000 + 4,050 + 960 + 2,500 = £39,510 a year: 23.5% above the salary, or about £3,290 a month.
Over 37.5 hours a week for 46 productive weeks (1,725 hours) that is £22.90 per hour. The employee receives about £26,560 after tax and NI, so of every £1 the company spends, roughly 67p reaches them.
Frequently asked questions
How much does an employee cost on top of salary in the UK?
Typically 20–30% for a full-time employee at an average salary, made up of employer NI (15% above £5,000), pension (3%+) and overheads. At lower salaries the percentage is smaller because more of the pay sits under the NI threshold.
What is the employer National Insurance rate for 2026/27?
15% on earnings above £5,000 a year per employee, unchanged from 2025/26. The rate and threshold are frozen until April 2028.
Who can claim the Employment Allowance?
Most businesses and charities that pay employer Class 1 NI. Since April 2025 there is no cap on the size of employer. The main exclusion is a company whose only employee earning above the threshold is a director.
Is it cheaper to use a contractor?
Sometimes. There is no employer NI or pension, and no holiday or sick pay, but day rates are higher and IR35 rules may make you liable for the tax if the arrangement looks like employment. Compare the contractor's annual cost with the "total cost" figure here, not with the salary.
How do I work out a charge-out rate from this?
Start with the cost per productive hour, add a share of overheads (the overhead allocation calculator helps), then add your target margin. Many service businesses find they need to charge 2.5–3 times the employee's hourly pay to make a sustainable profit.
The maths behind this calculator
For anyone who wants to check the working or rebuild it in a spreadsheet.
The calculation
Employer NI = (Salary − £5,000) × 15%
(for under-21s and apprentices under 25: (Salary − £50,270) × 15%, if positive)
Less Employment Allowance (if applied): up to £10,500 across the whole payroll
Pension = Salary × Employer contribution %
Total cost = Salary + Employer NI + Pension + Other costs
Cost per hour = Total cost ÷ (37.5 hours × 46 weeks) Assumptions and limits
- Employer NI uses the standard category A rate. Different categories apply to some employees (for example those over state pension age pay no employee NI, but the employer still pays).
- Pension is calculated on full salary. Statutory auto-enrolment applies the percentage to qualifying earnings only, which gives a slightly lower figure.
- The productive-hours figure assumes a 37.5-hour week and 46 working weeks (allowing for 28 days statutory holiday plus some sickness and training). Adjust mentally for part-time roles.
- Employment Allowance is applied in full to this one employee when ticked. In reality it is spread across the payroll and is only worth up to £10,500 in total.
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