Find out what an employee truly costs your business — not just their salary. Employer NI, pension, overhead, equipment and recruitment all add 30-50% above gross salary. See the full picture instantly.
Every pound of salary costs significantly more once employer obligations and overhead are factored in. For a £35,000 employee: employer NI adds £4,141, pension adds £1,050, benefits and recruitment add £4,500, and operational overhead (IT, HR, facilities, management time) adds £12,000-15,000. Total: approximately £52,000-55,000 — 50% above the salary figure that appears in the job ad.
Salary is just the start: Employer NI (13.8% above £5,000), auto-enrolment pension (minimum 3%), benefits, equipment, desk space, IT licence costs, HR administration, management time, sick pay, statutory redundancy risk. The rule of thumb: true employment cost is 1.3–1.5× gross salary for most UK office roles.
Contractors appear more expensive per day but often cost less overall: no employer NI, no pension, no sick pay, no holiday pay, no redundancy, no recruitment for future replacement, and engagement ends when the work is done. For project-based or specialist work with unpredictable demand, contractors at 1.5–2.5× the equivalent employed day rate are often the lower total cost option.
True annual cost = salary + employer NI (13.8% above £5,000 secondary threshold) + employer pension (minimum 3%) + benefits + recruitment cost amortised + overhead allocation (IT, facilities, HR, management). For a £35,000 salary: employer NI ≈ £4,141, pension ≈ £1,050, total before overhead ≈ £40,191. With 30% overhead: approximately £52,248. The cost per productive hour (after holidays, sick days, meetings) is approximately £30-38/hour.
A contractor is often cheaper than an employee for: project-based work of defined duration, specialist skills needed intermittently, roles where demand is variable, and situations where the employer NI secondary threshold change (down to £5,000 from April 2025) significantly increases employment cost for lower-paid roles. Calculate: employee total cost vs contractor day rate × expected days. Include management overhead for the contractor relationship. Contractors charging under 150% of equivalent employee total cost are typically the cheaper option for under 3-4 years of work.