Recruiting a new staff member
As a small business owner, it is vital to understand the UK staff cost calculations when recruiting a new staff member. Calculating the staff cost and the anticipated extra profit that an extra pair of hands will generate, helps you assess the potential financial impact on the business. Three core figures for the calculations are:
- Salary plus any commission or bonuses
- Employer’s national insurance contributions
- Workplace pension contributions
The illustration below gives a breakdown of the costs to a business for an employee earning £35,000 a year:
| Salary | £35,000 |
| Employer’s national insurance | £4,500 |
| Workplace pension | £863 |
| TOTAL cost to business | £40,363 |
The figures for the national insurance and pension contributions are calculated as follows:
Employer national insurance contributions (from April 2025):
Employers pay national insurance contributions on employee salaries over £416 a month (£5,000 annually).
On a £35,000 annual salary or £2,916 monthly:
- Subtract the £416 threshold from the monthly pay of £2,916 leaving £2,500 subject to NI.
- Calculate 15% of £2,500: £2,500 x 15% = £375 monthly
- The annual contribution is £375 x 12 = £4,500
Employer workplace pension contributions:
Employers must contribute at least 3% to the workplace pensions of their staff under automatic enrolment legislation. Contributions are due on staff earnings between £6,240 and £50,270. Not all staff are eligible for automatic pension enrolment.
- On an annual salary of £35,000, employer contributions are due on £28,760 (£35,000 less £6,240).
- The monthly equivalent is £2,396 (£2,916 – £520)
- Calculate 3% of £2,396 = £71.91 a month or £863 a year
- No pension contributions are required on earnings above £50,270.
Employer national insurance allowance
The employment national insurance allowance is a tax relief eligible employers can claim to reduce their national insurance liability. From April 2025 the allowance is increasing to £10,500 a year and is available to eligible employers. You cannot claim the allowance if you have a company where the director is the sole employee or employees who are deemed to fall under IR35 rules. Furthermore, you can’t claim it if you employ someone for personal or household work, like a nanny or gardener. The allowance is intended to help small businesses and is claimed through your payroll software.
You can check your eligibility for the allowance on HMRC’s website:
Employment Allowance: Check if you’re eligible – GOV.UK
