How This Calculator Works
Employee costs include salary, employer NI at 15% (above the £5,000 threshold for 2025/26), employer pension contributions on qualifying earnings, statutory holiday pay (28 days), plus one-off costs like recruitment and equipment amortised over the first year.
Contractor costs are day rate × working days, plus any agency or umbrella company fees. If the contractor is inside IR35, you also pay employer NI on their deemed employment payment.
Key insight: Contractors often look more expensive per day, but they come with zero commitment — no holiday pay, no sick pay, no pension, no recruitment risk. Employees are cheaper long-term but carry significant fixed overhead.
IR35 is tax legislation that determines whether a contractor is genuinely self-employed or effectively an employee. If a contractor is "inside IR35", the hiring company must deduct PAYE tax and NI as if they were an employee, significantly increasing costs.
There are 260 weekdays in a year. Employees typically get 28 days holiday, leaving 232 working days. Contractors usually work 220 days (accounting for gaps between contracts and their own holiday). Adjust based on your situation.
Beyond cost, consider: duration (short projects favour contractors), flexibility needs, IP ownership, team integration, and management overhead. Contractors suit project-based work; employees suit ongoing roles. Use our Employee Cost Calculator for a deeper employee cost breakdown.