UK staff cost calculations

Last Updated on July 7, 2026

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

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% of their staff’s pay to workplace pensions 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.

• For an annual salary of £35,000, employer contributions are due on £28,760 (i.e., £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. Since April 2025, the annual allowance is £10,500 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. You also can’t claim it if you employ someone for personal or household work, such as 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

Other resources:

Our shop has resources to help small businesses forecast their staff costs. You’ll find a choice of two Staff Budget Excel spreadsheets in our shop.