How to calculate the true cost of hiring an employee in the UK (2026)

The true cost of hiring an employee in the UK is the salary plus everything you pay because that person works for you. For most small businesses that means employer's National Insurance, a pension, paid holiday, sick pay, recruitment, kit, desk space, training and your own time. In our worked example below, a £36,000 salary turns into a first-year cost of about £52,300.

That gap is why a budget built on salary alone runs short. This guide walks through each cost in order, using the 2026 to 2027 rates from GOV.UK. Then it gives you a worksheet to fill in for your own hire, and a simple way to turn the total into a cost for each day of work you actually get.

Why salary is only the starting point

When you agree a salary, you agree the number the employee sees. You pay more than that. Some extra costs are set by law, so you cannot avoid them. Others depend on how you run your business, so you have some control.

It helps to sort costs into three groups before you start:

The legal on-costs are the ones most owners know about but rarely add up. The one-off and running costs are the ones they forget. Both matter. A hire that looks affordable on salary can strain cash flow once the full bill arrives.

Step 1: Start with the salary

Write down the gross yearly salary you plan to offer. Add any bonus, commission or overtime you expect to pay, because these usually attract the same on-costs.

Check the legal floor first. From April 2026, GOV.UK's National Minimum Wage rates show £12.71 an hour* for workers aged 21 and over. For someone working 37.5 hours a week, that is about £24,785 a year. You cannot pay less than this for an adult on those hours.

For a sense of where a typical salary sits, the ONS Annual Survey of Hours and Earnings found that median gross annual earnings for full-time employees were £39,039 in April 2025*. Your role may sit well above or below that, so use the salary you would really offer.

Step 2: Add employer's National Insurance

Employer's National Insurance is the biggest legal cost on top of pay. GOV.UK's rates and thresholds for employers 2026 to 2027 set the secondary threshold at £5,000 a year* and the employer rate at 15%* for most employees.

The simple sum for one employee on a steady salary is:

(Salary minus £5,000) x 15% = employer's National Insurance for the year

So a salary of £36,000 gives (£36,000 minus £5,000) x 15%, which is £4,650 a year. Payroll software works this out each pay period, so the real figure can differ slightly. But the yearly sum is close enough for planning.

There are some exceptions. The same GOV.UK page lists an upper secondary threshold of £50,270 a year* for employees under 21 and for apprentices under 25. Below that level, the employer rate for those workers is 0%. If you plan to hire a young person or an apprentice, check this before you budget.

This guide gives one worked example only. If you want to see the figure at a range of salaries, a later post in this series sets out employer's NI band by band. For the wider story of what changed in 2025, see employer National Insurance after the 2025 rise.

Step 3: Take off the Employment Allowance, if you can claim it

The Employment Allowance can cut your National Insurance bill a lot. GOV.UK's Employment Allowance guide says it lets eligible employers reduce their annual National Insurance liability by up to £10,500*.

The key point is that the allowance is per employer, not per employee. It comes off your total employer's National Insurance bill for the year. So the effect on a new hire depends on what you already pay:

• If you have no other staff, the allowance may cover all of the new hire's National Insurance.
• If you already have a few staff, some of the allowance may be left. Work out how much.
• If your bill is already well above £10,500, the allowance is used up, and the new hire costs the full amount.

At £4,650 each, the allowance covers the employer's National Insurance of about two people on £36,000.

Not everyone can claim. The eligibility page says that if your company has only one director, they must not be the only employee liable for secondary Class 1 National Insurance. It also rules out some workers, such as people within IR35 off-payroll rules. A group of connected companies can only claim once. Ask your accountant or payroll provider to confirm your own position.

A later guide covers how to claim the Employment Allowance step by step.

Step 4: Add the workplace pension

Most employees must be put into a workplace pension. GOV.UK's guide to what you, your employer and the government pay shows a minimum employer contribution of 3%*, out of a total minimum of 8%.

In most automatic enrolment schemes, contributions are based on earnings between £6,240 and £50,270 a year*. So the simple sum is:

(Salary minus £6,240) x 3% = minimum employer pension cost

For £36,000, that is (£36,000 minus £6,240) x 3%, or about £893 a year. Some schemes use a different earnings basis, and many employers pay more than 3% to attract staff. Use your own scheme's rules if you have them. For a full guide, see what pension auto-enrolment costs employers.

Step 5: Count holiday and bank holidays

Paid holiday does not add a separate bill, because it is already part of the salary. But it does change what you get for your money. GOV.UK's holiday entitlement page says most workers on a 5-day week must get at least 28 days' paid leave a year*. An employer can include bank holidays in that.

GOV.UK's bank holidays list shows 8 bank holidays in England and Wales in 2027*. If you give 28 days plus bank holidays on top, the paid time off rises to 36 days.

Here is why this matters. A full-time year has about 260 weekdays. Take off 28 days of leave and you are paying for 260 days but getting at most 232 days of work. If you need cover while someone is away, through overtime or a temp, that is a real cash cost. Add it to your worksheet.

Step 6: Plan for sick pay, which now starts on day one

Sick pay is the cost owners most often leave out. For 2026 to 2027, the GOV.UK rates and thresholds page sets Statutory Sick Pay at £123.25 a week*, or 80% of the employee's average weekly earnings if that is lower. It says the daily amount is due from the first day of illness*. The same page says employers cannot recover SSP.

GOV.UK's Statutory Sick Pay guide for employers says it is paid for up to 28 weeks. You can offer more through a company sick pay scheme, but you cannot offer less.

How much sickness should you plan for? The CIPD's Health and wellbeing at work 2025 report found the average was 9.4 days of absence per employee per year*. Your team may be higher or lower, but this is a fair planning number.

The cash cost depends on your contract:

• If you pay SSP only, on a 5-day week the daily rate is about £24.65. Over 9.4 days that is about £232. You save the salary for those days, so the main cost is lost work and any cover.
• If you pay full company sick pay, you pay the full salary for days with no work done. On £36,000 that is about £138 a day, or about £1,300 over 9.4 days.

Either way, sick days come off the days you actually get. For more on the costs owners forget, read holiday pay, sick pay and parental leave costs.

Step 7: Add the cost of finding the person

Recruitment costs vary more than any other line. They depend on the route you take:

• A job advert you run yourself. You pay for the advert and spend hours on sifting and interviews.
• A recruitment agency. You pay a fee, often worked out as a share of the first year's salary. Ask for the exact terms, including any rebate if the hire leaves early.
• Referrals. Cheaper in cash, but still costs interview time.

Do not forget your own time. Writing the advert, reading CVs, interviewing and checking references can take days. Put an hourly value on it. Flink's guide to reducing recruitment costs without lowering the quality of hires has practical ways to cut this line.

A bad hire repeats the whole cost, so a careful process is worth paying for. The CIPD notes in its induction factsheet that under the Employment Rights Act 2025, from 1 January 2027, employers will have six months to check a new starter is performing as expected*. That makes the early weeks more important. Flink's article on the real cost of hiring fast and firing late covers the warning signs. For the wider law changes, see what the Employment Rights Act 2025 changes for UK employers.

Step 8: Equipment, software and insurance

Most office roles need a laptop, a phone or headset, and software licences. Some of this is a one-off cost and some is monthly. List each item and its yearly cost, including email, accounting or design tools, and any security software.

You also need insurance. GOV.UK's guide to employers' liability insurance says you must get it as soon as you become an employer, with cover of at least £5 million*. If you already have staff, a new hire may raise your premium. Ask your broker.

Step 9: Desk space, if the role is office-based

If the person works in your office, they take up space you pay for. That includes rent, business rates, power, heating, cleaning and furniture. A rough way to estimate it is to divide your yearly office costs by the number of desks, then use that figure for each new person.

If the role is fully remote, this line may be close to zero. But you may still pay for a home office set-up or a co-working day now and then.

Step 10: Training and management time

A new starter is not fully productive on day one. Someone has to show them the systems, check their work and answer questions. That someone is often you.

Plan for two types of cost:

• Training. Courses, certifications or learning platforms. Even if you train in-house, put a value on the trainer's time.
• Management time. Regular check-ins, feedback and reviews. An hour or two a week adds up across a year.

These costs are easy to ignore because they do not show up as an invoice. But they come out of hours you could spend on sales or service. If you want to cut this line, look at ways to reduce business costs without losing quality.

Step 11: Check whether the Apprenticeship Levy applies

Most small firms do not pay this. The GOV.UK rates page says employers and connected companies with a total annual pay bill of more than £3 million* pay the Apprenticeship Levy. It is charged at 0.5%, with an allowance of £15,000 a year. If your pay bill is below £3 million, you can skip this step.

A worked example: one hire on £36,000

Example (hypothetical): a small UK business hires a bookkeeper on £36,000 a year to work in its office. It already has several staff, so its Employment Allowance is used up. The legal figures below use the 2026 to 2027 rates. The other figures are made up for the example, so swap in your own.

In this example, the first year costs about 1.45 times the salary. In year two, the recruitment cost drops out, so the total falls to about £49,300. If the business could still claim the full Employment Allowance, the year one total would fall by £4,650 to about £47,650.

Turn the total into a cost per working day

This is the number that tells you what the hire really costs. Start with 260 weekdays. Take off 28 days of holiday. Take off 9.4 days of sickness, using the CIPD average. That leaves about 222.6 working days.

Divide £52,303 by 222.6 and the cost is about £235 for each day of work you get. The salary alone, spread over 260 days, looks like about £138 a day. That gap is the true cost of hiring.

Your worksheet: the true cost of your next hire

Copy this table and fill in your own numbers. Use the rates in the steps above for the legal lines.

A quick check before you sign off the hire

• Can you cover the year one total from cash flow, not just the salary?
• Have you checked whether your Employment Allowance is already used up?
• Do you know how your pension scheme works out contributions?
• Have you put a value on your own time for hiring and training?
• Would the role still pay for itself at the cost per working day?

If any answer is no, fix that line before you advertise.

Ways to bring the true cost down

Once you can see each line, you can work on the ones you control. Some options:

• Use your reliefs. Check the Employment Allowance and the lower rates for under 21s and apprentices.
• Hire well first time. A clear brief, structured interviews and reference checks cut the risk of paying twice.
• Cut the desk cost. Hybrid or remote work can lower the office line.
• Look at the role itself. Some work is steady and full time. Some is a few hours a week and suits a freelancer or part-timer.
• Look further afield. Some UK firms hire remote staff abroad for roles that do not need to be in the office. If you want to explore that, read why UK businesses hire in South Africa, and how to compare UK and South African hiring costs line by line.

The same method works for any role. For example, see how the numbers look for the cost of a software developer in South Africa, or for a UK customer support team next to a South African one.

Where Flink fits

Flink Remotely helps UK businesses hire skilled remote employees in South Africa. We act as recruitment partner and employer of record. We find the person, then employ them in South Africa and handle the contract, payroll and benefits there. You manage their daily work.

This changes several lines in your worksheet. In most cases there is no UK employer's National Insurance or UK pension on a hire employed in South Africa, and no desk to find. There isn't an upfront cost to engage Flink. A once-off setup fee covers sourcing, onboarding, equipment and testing, and Flink handles IT and VoIP setup. Every candidate is pre-vetted through video interviews, psychometric tests and reference checks, and many clients onboard their new hire within a few weeks.

To compare with the worked example, Flink's savings calculator shows a bookkeeper with 2 to 5 years' experience at an indicative £24,545 + VAT a year through Flink*. The calculator's typical UK salary for the same role is £36,000*, before any of the on-costs above. These figures are indicative, from Flink's savings calculator (September 2026). Flink figures are + VAT. A once-off setup fee also applies, and your exact quote depends on the role.

This route tends to suit full-time, desk-based work that can be done online: finance, admin, support, marketing and tech roles. It does not suit roles that need someone on site, or work that is only a few hours a month. You still manage the person, set their goals and give feedback, and you need to plan around different public holidays. Before you decide, compare the full yearly cost on both sides and ask for an itemised quote. You can see the finance and operations roles we hire for, or read our guide to hiring accountants and finance staff for less.

What this means for you

Never budget a hire on salary alone. Add employer's National Insurance at 15% above £5,000, check your Employment Allowance, add at least 3% pension and plan for holiday and sick days. Then add the costs that do not come with a legal rate: recruitment, kit, desk space, training and your time.

Fill in the worksheet for your next hire before you advertise. Turn the total into a cost per working day. That one number makes it much easier to decide whether to hire in the UK, change the role or look at another way of getting the work done. For your own case, a payroll provider or accountant can confirm the details.

Frequently asked questions

How much more than salary does an employee cost in the UK?

It depends on the salary, your reliefs and how you run the role. In our hypothetical example, a £36,000 hire cost about £52,300 in year one, or about 1.45 times the salary. The legal on-costs alone added about £5,543, and the rest came from recruitment, kit, desk space, training and management time.

Does the Employment Allowance apply to each new employee?

No. It is a single allowance of up to £10,500 a year for each eligible employer, taken off your total employer's National Insurance bill. If you already use all of it on existing staff, a new hire costs the full employer's National Insurance. Some businesses cannot claim at all, so check the GOV.UK eligibility rules or ask your accountant.

Is Statutory Sick Pay paid from the first day off?

For 2026 to 2027, GOV.UK says the daily SSP amount is due from the first day of illness. The weekly rate is £123.25, or 80% of average weekly earnings if that is lower, for up to 28 weeks. Employers cannot recover SSP from HMRC, so plan for it in your budget.

Do bank holidays count towards the 28 days of holiday?

They can. GOV.UK says an employer can include bank holidays as part of statutory annual leave. Most full-time workers must get at least 28 days a year. If you give 28 days plus bank holidays, the paid time off is higher, and your cost per working day goes up.

What is the easiest way to compare a UK hire with other options?

Fill in the worksheet for the UK hire first, including the cost per working day. Then get a full, itemised cost for each other option, such as a part-timer, a freelancer or a remote hire abroad. Compare like with like: the same role, the same hours and the same level of experience.

If you want to see your next hire costed side by side, compare the cost of your next hire with Flink's savings calculator.

Correct at the time of writing (October 2026). Rates and rules change, so check the linked source.

Sources

1. Rates and thresholds for employers 2026 to 2027, HM Revenue and Customs on GOV.UK, (accessed 24 October 2026)
2. National Minimum Wage and National Living Wage rates, GOV.UK, (accessed 24 October 2026)
3. Employee earnings in the UK: 2025 (Annual Survey of Hours and Earnings), Office for National Statistics, (accessed 24 October 2026)
4. Employment Allowance, GOV.UK, (accessed 24 October 2026)
5. Employment Allowance: check if you're eligible, GOV.UK, (accessed 24 October 2026)
6. Workplace pensions: what you, your employer and the government pay, GOV.UK, (accessed 24 October 2026)
7. Holiday entitlement, GOV.UK, (accessed 24 October 2026)
8. UK bank holidays, GOV.UK, (accessed 24 October 2026)
9. Statutory Sick Pay (SSP): employer guide, GOV.UK, (accessed 24 October 2026)
10. Health and wellbeing at work 2025, CIPD, (accessed 24 October 2026)
11. Induction factsheet, CIPD, (accessed 24 October 2026)
12. Employers' liability insurance, GOV.UK, (accessed 24 October 2026)
13. How to Reduce Recruitment Costs Without Reducing the Quality of Hires, Flink Remotely, (accessed 24 October 2026)
14. The Real Cost of Hiring Fast and Firing Late, Flink Remotely, (accessed 24 October 2026)
15. Customer support: hire remote talent, Flink Remotely, (accessed 24 October 2026)
16. Operations: hire remote talent, Flink Remotely, (accessed 24 October 2026)
17. Flink savings calculator, Flink Remotely, (accessed 24 October 2026)