What does hiring your first employee actually cost?
Many first-time employers focus on the salary figure and miss the mandatory add-ons. In 2026/27, every UK employer must pay employer National Insurance on top of gross salary — 15% on earnings above £5,000 — and once your employee is eligible, you must also make auto-enrolment pension contributions of at least 3% of their qualifying earnings. These two items alone typically add 14–17% on top of the headline salary.
At a £28,000 starting salary, the true employer cost before overheads is approximately £32,153 per year: £28,000 salary, £3,450 employer NI and £653 employer pension. If you are hiring at £35,000, the total reaches approximately £40,363 before any equipment, software or workspace costs. Use the employer cost calculator to model your specific salary.
Beyond the statutory costs, factor in one-off hiring costs that do not appear in the recurring model: job board fees (typically £100–£600 per post), any recruitment agency fees (often 10–20% of first-year salary for specialist roles), and the time cost of onboarding. The statutory costs on this page are the recurring floor — the true cost of hiring your first employee is higher when setup costs are included.
Employment Allowance — your key relief as a first employer
Good news for first-time employers: most new businesses can claim Employment Allowance in 2026/27, which reduces your employer NI bill by up to £10,500. If your first employee is on a salary below approximately £75,000, the allowance will cover your entire employer NI liability for the year.
The main exception is sole-director companies with no other employees. If you are the only director and have no other employees, you cannot claim. Once you hire your first employee (who is not a fellow director), the allowance becomes available. Check HMRC's guidance or confirm with your accountant before the first payroll run.
To claim Employment Allowance, select 'Yes' in the Employment Allowance field within your payroll software at the start of the tax year. Most UK payroll software — Xero, QuickBooks, Sage, FreeAgent — handles this automatically once you indicate eligibility. The allowance is applied against your employer NI liability each pay period until used.
Auto-enrolment: your pension duties from day one
If your first employee is aged 22 or over and earns more than £10,000 per year, you must automatically enrol them into a workplace pension within six weeks of their start date. You must make a minimum employer contribution of 3% on qualifying earnings between £6,240 and £50,270. There is no opt-out for the employer — only the employee can choose to opt out.
For a £30,000 salary, qualifying earnings are £30,000 minus £6,240 = £23,760. Your minimum employer pension contribution is 3% of £23,760 = £712.80 per year, or approximately £59 per month. This is paid into the employee's pension pot in addition to their employee contribution (minimum 5% of qualifying earnings under auto-enrolment rules).
Most payroll software handles auto-enrolment automatically once you set it up, but you need to register with a pension provider first. NEST (the National Employment Savings Trust) is a government-backed option available to all UK employers. You can use any authorised pension provider. Set this up before your first payroll run rather than scrambling to catch up.
True first-employee cost by salary: worked examples
At a £25,000 salary with Employment Allowance: employer NI is £3,000 but fully offset by allowance, so net NI = £0. Pension = £563. True recurring cost = £25,563 per year. This is the best-case scenario for a first employer who qualifies for the allowance.
At a £30,000 salary with Employment Allowance: NI of £3,750 fully offset. Pension = £714. Recurring cost = £30,714. Without Employment Allowance, the figure rises to £34,464. The difference — £3,750 — is the value of claiming the allowance at this salary.
At a £45,000 salary, the employer NI is £6,000 per year. Employment Allowance offsets £6,000 fully. Pension on qualifying earnings: (£45,000 − £6,240) × 3% = £1,162.80 per year. Recurring cost with allowance: £46,163. Without allowance: £52,163. Beyond £75,000 salary, NI will exceed the £10,500 allowance and a residual NI liability applies. Use the calculator to model the exact figure.
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