Salary is only the first layer of the cost
Last updated: August 2026. When you offer someone a £30,000 job, £30,000 is not what they cost you. It is the visible top of a stack that also includes employer National Insurance, an auto-enrolment pension contribution and a set of operational overheads that recur every year the person is employed. Budgeting on the headline salary alone is the single most common reason small employers overspend on headcount — the true figure is usually 15% to 30% higher once every layer is counted.
The two statutory layers — employer NI and pension — are fixed by law and scale with pay, so they are predictable once you know the 2026/27 rules. The third layer, overheads, varies by role and setup but is real cash all the same: a laptop, software licences, a desk or a share of workspace, and the admin time to run payroll. This guide walks through each layer with the exact 2026/27 figures, then puts them together in full worked examples for a £30,000 and a £45,000 hire.
Throughout, the numbers assume a standard adult employee on the main rates. Different figures apply to employees under 21 and apprentices under 25, where employer NI is not charged until earnings exceed £50,270 — a relief that can materially cut the cost of younger hires.
Employer National Insurance: 15% above £5,000
Employer Class 1 National Insurance for 2026/27 is charged at 15% on every pound of an employee's earnings above the secondary threshold of £5,000 a year. Unlike employee NI, there is no upper limit — the 15% keeps applying however high the salary goes. This is the largest add-on cost for most employers and the one most often underestimated, because the £5,000 threshold is low, so almost all of a normal salary is liable.
The maths is straightforward: take the salary, subtract £5,000, and multiply by 15%. On a £30,000 salary the NIable amount is £25,000, so employer NI is £3,750 a year. On a £45,000 salary the NIable amount is £40,000, so employer NI is £6,000 a year. Because the rate is flat and uncapped, employer NI rises in a straight line with salary — every extra £1,000 of pay adds £150 of NI.
This 15% rate and £5,000 threshold took effect in April 2025 (up from 13.8% and a £9,100 threshold) and continue unchanged for 2026/27. The combination of a higher rate and a much lower threshold is why payroll costs jumped for most employers, and why costing a new hire on pre-2025 assumptions understates the true figure by hundreds of pounds per employee.
The £10,500 Employment Allowance — and who can claim it
Employment Allowance lets eligible employers reduce their annual employer NI bill by up to £10,500 in 2026/27. It is not a cash grant — it is applied against your Class 1 NI liability through payroll, reducing what you pay HMRC until the £10,500 is used up. For a small employer, this can wipe out the employer NI on the first two or three staff entirely.
Take the £30,000 example: gross employer NI is £3,750. An eligible business claiming Employment Allowance pays £0 of that until the £10,500 is exhausted across all its employees. A firm with two people on £30,000 generates £7,500 of employer NI a year — fully covered by the allowance, leaving nothing to pay. A firm with three would generate £11,250, of which £10,500 is covered, leaving just £750 due.
Not everyone can claim. The main exclusion is a company whose only employee paid above the secondary threshold is a director — a typical one-person limited company cannot claim. You also cannot claim if more than half your work is in the public sector (unless you are a charity), and your total Class 1 NI liability in the previous tax year must have been under £100,000. The allowance is claimed by ticking the Employment Allowance indicator in your payroll software's Employer Payment Summary; it is not automatic.
Auto-enrolment pension: at least 3% from the employer
If your employee is eligible for auto-enrolment — broadly, aged 22 to State Pension age and earning over £10,000 a year — you must enrol them in a workplace pension and contribute a minimum of 3% of their qualifying earnings. Qualifying earnings for 2026/27 are the slice of pay between £6,240 and £50,270, not the whole salary, which is a point many first-time employers get wrong.
For the £30,000 hire, qualifying earnings are £30,000 − £6,240 = £23,760, and the 3% minimum employer contribution is £712.80 a year. For the £45,000 hire, qualifying earnings are £45,000 − £6,240 = £38,760, and the 3% contribution is £1,162.80 a year. Above £50,270, qualifying earnings stop growing, so the statutory minimum pension is capped at about £1,321 a year (3% of £44,030) however high the salary goes.
The total minimum contribution across the scheme is 8% of qualifying earnings, with the employer paying at least 3% and the employee making up the rest from their own pay plus tax relief. Many employers choose to contribute more than 3% as a benefit — a genuine cost decision that should be modelled explicitly, because moving from 3% to 5% on the £45,000 example adds nearly £800 a year.
Overheads: equipment, software and workspace
Beyond the statutory costs sit the operational overheads of actually having someone work for you. These are not set by law, so they vary widely, but for an office-based or hybrid role a planning range of £2,000 to £5,000 per employee per year is realistic. Ignoring them is what turns an apparently affordable hire into a stretched budget three months in.
A typical breakdown: a laptop and peripherals amortised at £400–£700 a year; software and SaaS licences (email, collaboration, role-specific tools, security) at £500–£1,500 a year; a desk or share of workspace at anywhere from near-zero for fully remote staff to £3,000–£5,000 for managed office space; plus payroll administration, training and onboarding time. A mid-point overhead assumption of about £3,000 a year suits many office or hybrid roles and is the figure used in the worked totals below.
For hourly, casual or zero-hours workers there is an additional cost that salaried staff do not carry separately: holiday pay, calculated at 12.07% of hours worked. For salaried employees this is already inside the annual salary, but for variable-hours workers it is a genuine extra on-cost that must be budgeted on top of the hourly rate.
Worked totals: a £30,000 and a £45,000 hire
£30,000 salary. Employer NI (15% of £25,000) = £3,750. Employer pension (3% of £23,760) = £712.80. Statutory cost above salary = £4,462.80, giving a total statutory cost of £34,462.80 a year — about 14.9% above the headline salary before any overheads. Add a £3,000 overhead assumption and the true cost of employing that person is roughly £37,463 a year, or about £3,122 a month.
£45,000 salary. Employer NI (15% of £40,000) = £6,000. Employer pension (3% of £38,760) = £1,162.80. Statutory cost above salary = £7,162.80, giving a total statutory cost of £52,162.80 a year — about 15.9% above the headline salary. Add the same £3,000 overhead and the true cost is roughly £55,163 a year, or about £4,597 a month.
Two things stand out. First, employer NI is by far the biggest add-on — bigger than pension and, at these salaries, comparable to the whole overhead budget. Second, if the business can claim Employment Allowance, the NI on both these hires could be fully or largely covered, dropping the true cost close to salary plus pension plus overheads. Use the employer cost calculator to run your own salary with or without Employment Allowance and at any pension rate, and the team cost planner to total up a whole payroll.
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