Key facts
- Employer NI: 15% of pay above £5,000 a year, with no upper limit1.
- Minimum employer pension: 3% of qualifying earnings between £6,240 and £50,2702.
- Full time at 37.5 hours is 1,950 paid hours a year (37.5 × 52).
- Statutory holiday is 5.6 weeks (28 days for a five-day week), so about 1,740 hours are actually worked3.
How to work out an employee's cost per hour
- Start with the gross salary, or hourly rate × hours a week × 52.
- Add employer NI: (salary − £5,000) × 15%1.
- Add the employer pension: at least 3% × (salary capped at £50,270 − £6,240)2. Use your scheme's rate if it is higher.
- Add anything else you pay for: benefits and their 15% Class 1A NI, equipment, training, insurance.
- Divide by paid hours (1,950 for 37.5 hours a week) for the cost per paid hour, or by hours worked (1,740 once 5.6 weeks' holiday is deducted) for the cost per productive hour.
Use the cost per worked hour when you price a job or a client day rate: holiday is paid but nobody is working, so those hours have to be recovered from the rest of the year. Sick days and training days push the real figure higher again.
Worked example: £30,000 at 37.5 hours a week
| Item | Amount |
|---|---|
| Salary | £30,000.00 |
| Employer NI: (£30,000 − £5,000) × 15% | £3,750.00 |
| Employer pension: (£30,000 − £6,240) × 3% | £712.80 |
| Total annual cost | £34,462.80 |
| Per paid hour (÷ 1,950) | £17.67 |
| Per hour worked (÷ 1,740) | £19.81 |
The salary alone is £15.38 per paid hour. Before Employment Allowance, which can cut the employer NI if you are eligible.
Cost per hour by salary
Full time at 37.5 hours a week, adult employee, minimum pension, no Employment Allowance.
| Salary | Wage per paid hour | Total annual cost | Cost per paid hour | Cost per hour worked |
|---|---|---|---|---|
| £24,784.50 (£12.71 NLW) | £12.71 | £28,308.52 | £14.52 | £16.27 |
| £25,000 | £12.82 | £28,562.80 | £14.65 | £16.42 |
| £30,000 | £15.38 | £34,462.80 | £17.67 | £19.81 |
| £35,000 | £17.95 | £40,362.80 | £20.70 | £23.20 |
| £40,000 | £20.51 | £46,262.80 | £23.72 | £26.59 |
| £50,000 | £25.64 | £58,062.80 | £29.78 | £33.37 |
| £60,000 | £30.77 | £69,570.90 | £35.68 | £39.98 |
Total = salary + 15% employer NI above £5,000 + 3% pension on £6,240 to £50,270. Employees under 21 and apprentices under 25 carry 0% employer NI up to £50,2701, so their hourly cost is lower.
What changes the hourly cost
- Employment Allowance: if you can claim it, up to £10,500 a year of employer NI disappears4. A small business with one or two staff may pay no employer NI at all.
- Part-time hours: the £5,000 NI threshold is per employee, so the NI share of each hour is smaller on a lower salary.
- A pension above the minimum, or one calculated on total pay rather than qualifying earnings.
- Overtime: paid hours rise, but the NI and pension on the extra pay rise with them.
- Holiday above the statutory 5.6 weeks reduces the hours worked and raises the cost per hour worked.