Employee Cost Calculator
Calculate the TRUE cost of hiring an employee including salary, employer National Insurance, pension, holiday pay, training, insurance, and equipment.
Employee Details
Gross salary before tax (what they see on contract)
Employer Contributions
Legal minimum is 3%. Competitive employers offer 5-8%.
Automatic Calculations:
Additional Costs (Annual)
True Employment Cost
Total Annual Cost
£36734
1.22x the salary
Monthly Cost
£3061
Cost Breakdown
💡 Revenue Needed (3x Rule)
This employee needs to generate this much revenue to be profitable after all costs.
✓ Standard Cost Multiplier
Total cost is 1.22x salary. This is normal for UK employers. Budget for this.
📊 The 3x Rule
Employee should generate 3x their total cost in revenue. Less than 3x = you're subsidizing them.
💰 Cash Reserve
Have 6 months of their total cost saved before hiring. Protects you during slow periods.
⏰ Ramp-Up Time
New employees take 3-6 months to become profitable. Budget for training period losses.
The Real Cost of Hiring Your First Employee
"I'll pay them £30k, so that's £2,500 a month." Wrong. The true cost is £41,000+ once you add employer National Insurance, pension contributions, holiday pay, insurance, training, equipment, and admin time. This calculator shows you the real number.
🚨 The £10,000 Hiring Mistake
A builder hired a labourer at £28k thinking it would cost £2,333/month. Actual cost was £3,417/month (£41k/year) after employer NI, pension, insurance, van, tools, and training.
He didn't budget for it. Ran out of cash in month 4. Had to let the employee go. Wasted £14,000 in costs plus recruitment time.
Hidden Costs of Employment (2025/26)
On Top of Base Salary:
Employer National Insurance (13.8%)
On earnings above £9,100/year
Workplace Pension (3% minimum)
Auto-enrolment mandatory
Holiday Pay (5.6 weeks/year)
28 days for full-time
Employer's Liability Insurance
Legally required
Training & Development
Health & safety, skills, certs
Tools & Equipment
Initial + annual replacement
Uniform & PPE
Branded workwear, safety gear
Van (if provided)
Lease + insurance + fuel
Total Cost on £30k Salary
£41,000+*Holiday pay is typically built into hourly/annual rate, not added on top
Employer National Insurance Explained
You pay 13.8% on all employee earnings above £9,100/year (£175/week). This is ON TOP of their salary.
Example Calculation:
- • Employee salary: £30,000/year
- • Amount subject to NI: £30,000 - £9,100 = £20,900
- • Employer NI: £20,900 × 13.8% = £2,884
- • Your cost: £32,884 (salary + NI)
Plus pension, insurance, equipment on top of this. Employer NI is invisible to the employee - they never see it.
When Should You Hire Your First Employee?
✅ You're Ready to Hire If:
- • You're turning down work regularly (booked 4+ weeks out)
- • Revenue is 3x the employee's total cost for 6 months straight
- • You have 6+ months emergency fund AFTER hiring costs
- • You spend 60%+ of time on-tools (not admin/sales)
- • Margins are healthy (25%+ net profit)
- • You have a 12-month pipeline of work
❌ Don't Hire Yet If:
- • You're only just breaking even yourself
- • Work is inconsistent (busy then quiet)
- • You don't have 6 months cash reserves
- • You're working 40 hours/week or less (subcontract instead)
- • Profit margins are under 15%
- • You're thinking "they'll pay for themselves" (they won't for 6-12 months)
How Much Revenue Do You Need Per Employee?
The 3x Rule:
Each employee should generate 3x their total cost in revenue to be profitable after direct costs and overheads.
| Employee Salary | True Cost | Revenue Needed |
|---|---|---|
| £25,000 | £32,000 | £96,000 |
| £30,000 | £39,000 | £117,000 |
| £35,000 | £46,000 | £138,000 |
| £40,000 | £53,000 | £159,000 |
This assumes 30-35% gross margin. If your margins are lower, you need even more revenue.
Alternatives to Hiring Full-Time
🔧 Subcontractors
Pay only when you need them. No NI, pension, holiday pay, insurance, or equipment costs.
✓ Best for: Inconsistent work, specialist skills, testing demand
📅 Part-Time Employee
3 days/week costs 60% of full-time but still has NI, pension, and insurance obligations.
✓ Best for: Growing demand, need reliability, want to test fit
👨🎓 Apprentice
Lower salary (£7-15k), government funding for training, long-term investment in loyal employee.
✓ Best for: Stable business, willing to train, 2+ years ahead planning
📊 Virtual Assistant
Handle admin, scheduling, invoicing remotely. £10-20/hour, no overheads, only pay for hours used.
✓ Best for: Admin overwhelm, not ready for on-tools help
Legal Requirements When Hiring
⚠️ Must-Do Checklist:
- • Register as employer with HMRC (before first payday)
- • Get Employer's Liability Insurance (£5m minimum, legally required)
- • Set up PAYE system (payroll software or accountant)
- • Auto-enrol into workplace pension (within 3 months)
- • Provide written employment contract (within 2 months)
- • Do Right to Work checks (passport/visa verification)
- • Issue payslips monthly (shows gross, deductions, net)
- • Pay employer NI monthly (via PAYE)
- • Keep employment records (3 years minimum)
Related Calculators
Break-Even Calculator
See how hiring changes your break-even point
Emergency Fund Calculator
Calculate reserves needed after adding payroll
Helpful Resources
Turn Hiring Maths into Hiring Decisions
Use this calculator to understand the real cost of a hire, then combine it with your pipeline and job margins so you're hiring at the right time, not just when you feel busy.
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