Free tool · UK expansion
What does it cost to employ someone in the UK?
Salary is around four-fifths of it. Employer National Insurance and a compulsory workplace pension make up most of the rest. Enter a salary to see the full annual cost to your UK company.
About the hire
Per employee, before tax and employee National Insurance.
Use this to cost a whole team on the same salary, or leave at 1.
Legal minimum is 3% of qualifying earnings. Many employers pay more.
Annual cost to the company
£0
Gross salary, employer NI, pension and Apprenticeship Levy where it applies
Not included: recruitment, benefits, equipment, employer's liability insurance, or payroll administration.
How this estimate is built
Employer National Insurance is 15% of each employee's earnings above the secondary threshold of £5,000 a year. Unlike employee NI, there's no upper limit. The Employment Allowance takes £10,500 off the employer's total NI bill, once per group of connected companies, not once per employee.
Workplace pension. Employees aged 22 to State Pension age earning over £10,000 must be auto-enrolled. The legal minimum employer contribution is 3% of qualifying earnings, the band between £6,240 and £50,270, though many employers pay more or apply the rate to full salary instead.
Apprenticeship Levy. 0.5% of the annual pay bill, less a £15,000 allowance, so it only applies once the pay bill passes £3m. This tool applies it to the salary and headcount you've entered, so treat it as indicative if it's only part of a larger UK payroll.
What's excluded. Statutory sick pay, holiday pay (5.6 weeks, already included in salary), employer's liability insurance, benefits in kind and their Class 1A NI, and the cost of running payroll itself.
Estimate only, based on public HMRC rates for 2025/26. Not a substitute for advice. Part of the Paul Beare UK Expansion toolset.
Part of the Paul Beare UK Expansion Knowledge Hub.
Most overseas companies budget a UK hire at the salary they intend to offer. That number is the start of the cost, not the whole of it. Employer National Insurance and a compulsory workplace pension sit on top of every UK salary, and neither is optional or negotiable.
This guide sets out exactly what a UK employee costs a company beyond their salary, using current HMRC rates, and shows where overseas employers most often get the figure wrong when budgeting from outside the UK. You can also get an instant year-one figure using the employment cost calculator above, built on the same rates covered in this guide.
None of this is optional guidance. Employer National Insurance, the workplace pension minimum and PAYE registration are legal obligations from the day a UK company has its first employee, whatever the parent company’s own payroll rules look like at home.
What Is the True Cost of Employing Someone in the UK
The true cost of employing someone in the UK is their gross salary plus employer National Insurance, a minimum workplace pension contribution, and any Apprenticeship Levy the group’s UK pay bill triggers. For a typical hire, these statutory on-costs usually add somewhere between fifteen and twenty five percent on top of salary, before anything else such as recruitment, equipment or benefits is added in.
There’s no single fixed percentage, because the two largest additions, employer National Insurance and pension, both depend on the salary itself and on whether the employer has claimed the Employment Allowance. A lower salary sees proportionally more of it exposed to National Insurance once the allowance runs out; a higher salary sees the pension contribution capped once earnings pass the upper qualifying threshold. The only way to get an accurate figure for a specific hire is to run the actual numbers, which is exactly what the calculator on this page does.
Gross Salary vs Total Employment Cost
The salary in an offer letter is what the employee receives before their own tax and National Insurance. The total employment cost is what the UK company actually pays out, and it’s always higher, because employer National Insurance and pension sit on top of salary rather than coming out of it.
This is the figure overseas parent companies most often miss when a UK subsidiary asks for headcount approval. A request framed as “we need to hire someone at £45,000” understates what’s actually being committed. The number head office should be approving is the total employment cost, not the salary line, because that’s the number that hits the UK company’s accounts.
Why It Matters for Overseas CompaniesÂ
Payroll on-costs work differently in almost every country, and overseas finance teams naturally reach for what they know. A US parent is used to employer payroll tax structured very differently, with no direct UK equivalent. An Australian parent is used to superannuation rates and thresholds that don’t map onto UK auto-enrolment. Canadian and South African employers face their own separate sets of rates entirely. None of these translate directly, and assuming they do is how UK headcount budgets end up wrong before the first payslip is even run.
It matters for a second reason too. If the UK subsidiary recharges costs to the parent, or the group prepares consolidated management accounts, the employer on-costs need to be captured correctly from the start. Getting this wrong doesn’t just mean an inaccurate budget, it means inaccurate intercompany figures that someone has to unpick later.
How It Works in the UK
Employer National Insurance is charged at fifteen percent on each employee’s earnings above the secondary threshold of five thousand pounds a year. Unlike employee National Insurance, there’s no upper limit, so it keeps applying at fifteen percent on all earnings above the threshold, however high the salary.
The Employment Allowance offsets up to ten thousand five hundred pounds of employer National Insurance each tax year. This is claimed once per group of connected companies, not once per employee and not once per subsidiary, which is one of the most commonly missed details for a group with more than one UK entity.
A workplace pension is compulsory for eligible staff, meaning employees aged between twenty two and State Pension age earning over ten thousand pounds a year. The legal minimum employer contribution is three percent, applied to qualifying earnings, which is the band between six thousand two hundred and forty pounds and fifty thousand two hundred and seventy pounds, not the full salary. Many employers choose to pay more, and some apply the percentage to full salary rather than just the qualifying band, but three percent of qualifying earnings is the legal floor.
The Apprenticeship Levy applies at zero point five percent of the group’s total UK pay bill, less a fifteen thousand pound annual allowance, so it only becomes relevant once the pay bill passes three million pounds. For a new UK subsidiary with a handful of early hires, this rarely applies, but it’s worth knowing it exists before the group scales up.
What none of this includes is the salary itself, employer’s liability insurance, which is compulsory the moment a company has UK staff, recruitment costs, equipment, or any discretionary benefits. Holiday pay isn’t an additional cost either, since UK statutory holiday of five point six weeks is built into the salary an employee is already being paid, not paid on top of it.
Key Compliance Requirements
A UK subsidiary must register as an employer with HMRC before the first payday, and operate PAYE from that point on. Each pay run needs a Real Time Information submission to HMRC on or before payday, reporting pay and deductions. Employers’ Liability Insurance is a legal requirement from the day the first employee starts, with a minimum cover level set by law.
Auto-enrolment has its own statutory deadlines. Eligible employees must be assessed and enrolled within a set window from their start date, and the employer must complete a declaration of compliance with The Pensions Regulator confirming this has been done. Payroll records, payslips, and end of year documents such as P60s need to be kept and issued correctly, and any benefits in kind provided to staff need to be reported on a P11D, with Class 1A National Insurance paid on them separately.
Common Mistakes International Businesses Make
The most common mistake is treating the quoted salary as the full cost when a UK budget goes to head office for approval, rather than the total employment cost including National Insurance and pension. The second is assuming the Employment Allowance applies per subsidiary rather than once across the whole connected group, which overstates how much relief a group with more than one UK company will actually get.
A third is applying the three percent pension minimum to the full salary rather than the qualifying earnings band, which usually overstates the pension cost for higher earners and understates it for anyone near the lower threshold. A fourth is leaving PAYE registration until close to the first payday rather than starting it as soon as a start date is confirmed, since registration and the systems around it take time to set up properly. The fifth, and the most consequential, is carrying over a home country’s payroll assumptions wholesale, on the basis that payroll works roughly the same everywhere. It doesn’t, and the gap only becomes visible once the first UK payroll is actually run.
How Paul Beare Helps With This
Paul Beare’s Banking & Payroll service registers your UK subsidiary as an employer, runs PAYE and RTI submissions, and sets up auto-enrolment correctly from the first hire, so none of the detail above sits on your desk. Before an offer goes out, we calculate the real, total cost of the hire, so the figure that goes to head office for approval is the one the company will actually pay.
For groups weighing up how a UK entity should be structured before hiring at all, our HR & Legal service page team can also advise on the wider employment obligations that come with taking on UK staff, from contracts through to statutory leave entitlements.
Common questions
What's the real added cost of employing someone in the UK?
Usually between fifteen and twenty five percent above salary once employer National Insurance and the pension minimum are added, though the exact figure depends on the salary level and whether the Employment Allowance has been claimed. Use the calculator above for a figure specific to your hire.
Do we have to offer a pension from day one?
Yes, for any eligible employee. Auto-enrolment duties start from the employee’s first day, though there are statutory windows for completing the assessment and enrolment process.
What is the Employment Allowance, and can we claim it?
It’s a reduction of up to ten thousand five hundred pounds against a group’s employer National Insurance bill each tax year, claimed once per connected group rather than per company. Most new UK subsidiaries of overseas groups are eligible, though there are a small number of exclusions worth checking before assuming it applies.
Do these figures change every year?
Yes. The National Insurance threshold and rate, the Employment Allowance, and the pension qualifying earnings band are all reviewed and typically updated each April. The rates in this guide are for the 2025/26 tax year.
