True Cost of Hiring an Employee UK 2025
Calculate the full cost of hiring including salary, employer NI, pension, recruitment, equipment, and overheads. See cost per hour and cost per day.
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Minimum 3% auto-enrolment
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Frequently asked questions
How much does an employee really cost?▾
The true cost of an employee is typically 1.25x to 1.5x their salary. On top of the salary, employers pay National Insurance (13.8%), pension contributions (minimum 3%), plus recruitment, training, equipment, software, office space, and benefits. For a £40,000 salary, the true annual cost is typically £50,000-£60,000.
What is employer National Insurance?▾
Employers pay Class 1 National Insurance at 13.8% on employee earnings above the secondary threshold of £9,100 per year. There is no upper limit. For a £40,000 salary, the employer NI is approximately £4,264 per year.
What is the minimum employer pension contribution?▾
Under auto-enrolment, the minimum employer pension contribution is 3% of qualifying earnings. Qualifying earnings are between £6,240 and £50,270 (2025/26). Many employers contribute more than the minimum, especially for senior roles.
How many productive hours are there in a year?▾
The standard calculation uses 1,720 productive hours per year. This is based on 52 weeks minus 5.6 weeks holiday, minus 1 week average sick leave, minus 1 week training/development. Of the remaining hours, approximately 80% are productive (excluding meetings, admin, breaks).
What recruitment costs should I budget for?▾
Recruitment costs typically range from 10-25% of the first year salary. This includes job advertising (£200-2,000), recruitment agency fees (15-25% of salary), interview time, background checks (£50-200), and management time. For a £40,000 role, budget £4,000-£10,000.
What equipment does a new employee need?▾
Typical equipment costs for a new employee range from £1,000-£3,000 for an office worker. This includes a laptop (£800-1,500), monitor (£200-500), desk and chair (£300-600), peripherals (£100-200), and potentially a mobile phone (£200-500).
Is it cheaper to hire an employee or a contractor?▾
Contractors have a higher day rate but no ongoing costs (no NI, pension, holiday, sick pay, equipment, or training). An employee on £40,000 costs roughly £235/day including all overheads. A contractor at £350/day may still be cost-effective for short projects. For roles lasting over 6-12 months, employees are usually cheaper.
What office space costs should I include?▾
Office space costs per employee vary hugely by location. In London, expect £500-1,000/month per desk. In regional cities, £200-400/month. This includes rent, business rates, utilities, cleaning, and facilities. Hybrid working can reduce this to £100-300/month with hot-desking.
What software licenses does each employee need?▾
Common per-employee software costs include: Microsoft 365 (£100-250/yr), email security (£30-60/yr), project management tools (£100-200/yr), communication tools (£50-120/yr), and industry-specific software. Total software cost is typically £500-1,500 per employee per year.
How do I calculate cost per productive hour?▾
Divide the total annual employment cost (salary + all overheads) by the number of productive hours (typically 1,720). For an employee costing £50,000/year in total, the cost per productive hour is approximately £29. This is the rate you need to charge clients to break even on that employee.