Most employers know that hiring someone costs more than just their salary. But few realise exactly how much more. The true cost of an employee in the UK typically runs 20–40% above their gross salary once you factor in employer National Insurance contributions, pension obligations, holiday pay, and the practical costs of recruitment and equipment.
Since April 2025, the cost has increased further. The employer NI rate rose from 13.8% to 15%, and the threshold dropped from £9,100 to £5,000. For a business with 10 employees on average salaries, that's an additional £8,000–10,000 per year in NI alone.
This calculator helps you see the complete picture so you can plan your hiring budget accurately, compare the cost of employees versus contractors, and understand the financial impact of the 2025 NI changes on your business.
What is included in the "true cost" of an employee?
The true cost includes the employee's gross salary, employer National Insurance contributions (15% on earnings above £5,000 for 2025/26), employer pension contributions (minimum 3% of qualifying earnings for auto-enrolment), the cost of paid holidays, and optional extras like recruitment fees, equipment, and training.
What changed with employer NI in April 2025?
Two things changed: the employer NI rate increased from 13.8% to 15%, and the secondary threshold dropped from £9,100 to £5,000 per year. The Employment Allowance also increased from £5,000 to £10,500, which helps offset some of the increase for smaller businesses.
What are qualifying earnings for pension auto-enrolment?
For 2025/26, qualifying earnings are the band between £6,240 and £50,270 per year. The minimum employer contribution is 3% of qualifying earnings, not the full salary. Some employers calculate pension on full gross salary instead, which is more generous. This calculator supports both methods.
Does the Employment Allowance reduce my NI bill?
Yes. From April 2025, eligible employers can claim up to £10,500 off their annual employer NI bill. The previous £100,000 cap has been removed. You cannot claim it if you're the sole employee of your own limited company. This calculator shows NI per employee — apply the Employment Allowance across your total NI bill separately.
How does this compare to hiring a contractor?
Contractors charge a day rate that covers their own tax, pension, holiday, and business costs. While the headline rate looks higher, you don't pay employer NI, pension, holiday pay, sick pay, or recruitment costs. Use the effective daily cost figure from this calculator to compare directly against contractor day rates.