How much does an employee really cost? Employer costs 2026/27

An employee costs you their salary plus about 12% to 16% on top in 2026/27, once you add employer National Insurance and the minimum workplace pension. On a £30,000 salary that comes to about £34,463 a year. Insurance, equipment, recruitment and cover for holiday and sickness add more, and the Employment Allowance can take a large slice off for small employers.

What does an employee cost on top of salary?

The two legal on-costs every employer pays are employer National Insurance and pension contributions. Both are set out in HMRC’s rates and thresholds for employers 2026 to 2027, last updated 1 September 2026, and the Pensions Regulator’s earnings thresholds.

Most small businesses never pay the Apprenticeship Levy, because it applies only to employers with an annual pay bill over £3 million.

Worked examples for 2026/27

These figures add salary, employer NI at 15% above £5,000 and a 3% employer pension on qualifying earnings. They assume no Employment Allowance and no salary sacrifice.

For the £30,000 employee, employer NI is 15% of £25,000, which is £3,750. The pension is 3% of £23,760 (£30,000 less £6,240), which is £712.80. You can run your own numbers with the employer cost calculator.

How the Employment Allowance changes the sums

The Employment Allowance reduces your employer NI bill by up to £10,500 a year if you are eligible. A business with three staff on £30,000 would owe £11,250 in employer NI, so the allowance would cut that to £750.

You cannot claim it if your only employee paid above the secondary threshold is a director. Our guide to the Employment Allowance covers the eligibility rules, and employer’s NI explained shows other ways to reduce the bill.

Employers also pay no NI up to £50,270 on most employees under 21, apprentices under 25 and qualifying veterans in their first year of civilian work.

Holiday, sickness and family leave

Paid time off does not add to the salary bill, but it costs you output or cover. A worker on a five-day week is entitled to 28 days of paid leave, which is 5.6 weeks, according to GOV.UK’s holiday entitlement guide. Bank holidays can be counted within that 28 days.

• Statutory Sick Pay. £123.25 a week, or 80% of average weekly earnings if lower, payable from the first day of sickness. You cannot reclaim it from HMRC.
• Statutory Maternity Pay. 90% of average weekly earnings for six weeks, then £194.32 a week or 90% if lower. Most employers reclaim 92%, and small employers more, through payroll.
• Agency or temporary cover. Budget for this if one absence would stop the business.

Other costs to budget for

Beyond tax and pension, these are the costs owners most often forget:

• Employers’ liability insurance. Required by law for most employers, with at least £5 million of cover. The fine is £2,500 for each day you are not insured, and £1,000 for not displaying the certificate. GOV.UK lists the family member exemption.
• Payroll. Software or a bureau to run PAYE and RTI submissions.
• Equipment. A laptop, phone, desk, licences and any protective equipment.
• Recruitment. Job board fees or an agency fee, plus your own time.
• Training and onboarding. Weeks of lower output while a new starter learns the role.
• Benefits. Anything above the legal minimum, such as a higher pension or private medical cover, which may carry Class 1A NI at 15%.

Which cost applies to you?

• If you pay an employee less than £5,000 a year, you pay no employer NI on them.
• If they earn less than £10,000 a year, you do not have to auto-enrol them, though they can ask to join.
• If they are under 21 or an apprentice under 25, employer NI is usually zero up to £50,270.
• If your only paid employee is you as a director, you cannot claim the Employment Allowance.

What changes from April 2027

Budget 2026 on 28 October set the 2027/28 payroll figures. The National Living Wage rises to £13.21 an hour from 1 April 2027, a 3.9% increase. Employer NI stays at 15% above £96 a week, and the Employment Allowance stays at £10,500. See payroll changes for 2027-28 for the full list.

What to do now

1. Work out the total cost, not just the salary, before you advertise a role.
2. Check you qualify for the Employment Allowance and claim it in your payroll software.
3. Arrange employers’ liability insurance before the first day of work.
4. Set up PAYE and a workplace pension. Our first employee checklist walks through each step.

Frequently asked questions

How much does it cost to employ someone on £30,000?

About £34,463 a year in 2026/27: £30,000 salary, £3,750 employer NI and £712.80 in minimum employer pension contributions, before any Employment Allowance.

What percentage on top of salary does an employee cost?

Employer NI and a 3% pension usually add about 12% to 16% to salary at typical pay levels. Insurance, equipment and recruitment add more.

Do I pay employer National Insurance on every employee?

Only on pay above £5,000 a year (£96 a week). For most employees under 21 and apprentices under 25 the rate is 0% up to £50,270.

Can I claim back Statutory Sick Pay?

No. HMRC’s 2026/27 guidance says SSP cannot be recovered, so it is a direct cost to the employer.

Is employers’ liability insurance compulsory?

Yes, for most employers. You need at least £5 million of cover, unless you employ only close family members or people based outside England, Scotland and Wales.