This is for small UK businesses budgeting for a hire in the 2026/27 tax year. It covers the costs set by law: employer National Insurance, workplace pension, paid holiday, sick pay and insurance. Recruitment, equipment and payroll software come on top and vary too much to put a number on.
What does an employee cost on top of salary?
Two costs are added to every payslip: employer National Insurance and the employer's pension contribution. For the salaries below they add between 14% and 16% on top of pay.
| Salary | Employer NI (15% over £5,000) | Minimum employer pension (3% of £6,240 to £50,270) | Total cost |
|---|---|---|---|
| £25,000 | £3,000.00 | £562.80 | £28,562.80 |
| £30,000 | £3,750.00 | £712.80 | £34,462.80 |
| £40,000 | £5,250.00 | £1,012.80 | £46,262.80 |
The pension figure assumes the scheme uses qualifying earnings, the band GOV.UK says most automatic enrolment schemes use (£6,240 to £50,270 a year). Your scheme's rules may use a different definition of pay, or you may choose to pay more.
Employer National Insurance and Employment Allowance
Employer National Insurance is 15% of earnings above £5,000 a year (£417 a month) in 2026/27, with no upper limit. For employees under 21, apprentices under 25 and veterans (category letters M, H and V), the employer pays nothing on earnings up to £50,270.
Employment Allowance takes up to £10,500 a year off the employer National Insurance bill. On a £30,000 salary the employer National Insurance is £3,750, so the allowance covers two such employees in full and most of a third. It isn't available to a company whose only employee paid above £5,000 is a sole director, or for household staff such as a nanny, unless they are a care or support worker. Our post on Employment Allowance covers how to claim.
Workplace pension
You must automatically enrol workers aged 22 to State Pension age who earn at least £10,000 a year and usually work in the UK. The legal minimum is 8% of qualifying earnings in total, of which the employer pays at least 3%. Staff who earn less can ask to join, and if they earn more than £520 a month you must contribute for them too.
Holiday, sick pay and family leave
- Holiday: 5.6 weeks' paid leave a year, 28 days for a five-day week. It is already in the salary, but if you need cover while someone is away, budget for it: on £30,000 over 260 working days, 28 days is £3,230.77 of pay for days not worked.
- Statutory Sick Pay: £123.25 a week in 2026/27, or 80% of average weekly earnings if lower, payable from the first day of sickness. Employers can't recover SSP from HMRC.
- Maternity, paternity and other statutory parental pay: the employer pays it, then recovers 92% from HMRC, or 109% if total Class 1 National Insurance for the previous tax year was £45,000 or less.
Insurance and other legal costs
- Employers' liability insurance: required as soon as you become an employer, with cover of at least £5 million from an authorised insurer. GOV.UK says you can be fined £2,500 for every day you aren't properly insured. You don't need it if you only employ close family members.
- Apprenticeship Levy: 0.5% of the annual pay bill, with a £15,000 allowance, and only for employers whose pay bill is over £3 million. Small employers don't pay it.
- Minimum wage: from 1 April 2026 the National Living Wage is £12.71 an hour for workers aged 21 and over. A 37.5-hour week at that rate comes to £24,784.50 a year.
What does a minimum wage employee cost?
About £28,309 a year for a full-time worker aged 21 or over, before Employment Allowance. At £12.71 an hour for 37.5 hours a week, pay is £24,784.50 a year. Employer National Insurance on it is £2,967.68 (15% of £19,784.50) and the minimum pension contribution is £556.34 (3% of £18,544.50), so the total is £28,308.52.
Two things move that figure. A worker aged 18 to 20 has a minimum of £10.85 an hour and, if under 21, no employer National Insurance up to £50,270. An apprentice under 19, or in the first year of an apprenticeship, has a minimum of £8.00 an hour, and apprentices under 25 also carry no employer National Insurance up to £50,270.
How to work out the cost of one hire
- Start with the gross salary or hourly rate times hours.
- Add employer National Insurance: 15% of pay above £5,000 a year (check the category letter for under-21s and apprentices).
- Add the employer pension contribution under your scheme's rules, at least 3% of qualifying earnings.
- Take off Employment Allowance if you're eligible, spread across your payroll.
- Add employers' liability insurance and any cover for holidays and sickness.
The free National Insurance calculator shows the employer National Insurance for one pay period, which is the figure that changes most with salary.
Where PayDocs fits
PayDocs makes the payslip once you have run payroll: pay, tax, National Insurance, pension and any statutory pay on separate lines. PayDocs works out PAYE income tax, National Insurance and supported deductions for 2026/27 pay dates. Employer costs such as employer National Insurance don't appear on the employee's payslip. You preview free and pay per payslip.
This is general information about UK rules for the 2026/27 tax year, as published on 8 October 2026. It is not tax or legal advice.
Questions
What does an employee cost on top of salary?
In 2026/27, employer National Insurance at 15% of pay above £5,000 a year and at least 3% of qualifying earnings into a workplace pension. On £30,000 that is £4,462.80, before any Employment Allowance.
How much is employer National Insurance in 2026/27?
15% of each employee's earnings above £5,000 a year (£417 a month), with no upper limit. Employers pay nothing up to £50,270 for under-21s and apprentices under 25.
Does Employment Allowance reduce the cost of an employee?
Yes, if you're eligible. It takes up to £10,500 a year off your employer National Insurance bill. A company whose only employee is a sole director can't claim it.
Do I have to pay into a pension for every employee?
You must automatically enrol workers aged 22 to State Pension age earning at least £10,000 a year, and contribute at least 3% of qualifying earnings. Others can ask to join.
What does a minimum wage employee cost?
A full-time worker aged 21 or over on £12.71 an hour for 37.5 hours a week costs about £28,309 a year in 2026/27: £24,784.50 of pay, £2,967.68 of employer National Insurance and £556.34 of pension.
Do small employers pay the Apprenticeship Levy?
No. It only applies when the employer's annual pay bill, with connected companies, is over £3 million. It is 0.5% of the pay bill less a £15,000 allowance.
Sources
- GOV.UK: Rates and thresholds for employers 2026 to 2027
- GOV.UK: Employment Allowance, check if you're eligible
- GOV.UK: Workplace pensions, joining a workplace pension
- GOV.UK: Workplace pensions, what you, your employer and the government pay
- GOV.UK: Holiday entitlement
- GOV.UK: Employers' liability insurance
- GOV.UK: National Minimum Wage and National Living Wage rates
Sources checked 8 October 2026. This article explains how pay documents work; it is not tax or legal advice.
