Employer cost calculator for your first hire

What an employee costs on top of the wage

On top of the wage, an employer pays three things by law: employer National Insurance, a workplace pension contribution and paid holiday. Holiday is already inside the salary, so the extra cash goes on NI and pension. From 6 April 2026, the start of the 2026/27 tax year, HMRC's rates and thresholds for employers set employer NI at 15% on pay above the secondary threshold of £5,000 a year (£96 a week, £417 a month), with no upper limit.

The pension minimum is 3% from you on the employee's qualifying earnings, the slice of pay between £6,240 and £50,270 for 2026/27. The employee puts in 5%, making the 8% total. Their 5% comes out of their wage, not your pocket.

So the calculator works out: employer NI = 15% × (salary minus £5,000), then takes off Employment Allowance if you claim it, then adds your pension percentage of qualifying earnings (or of full pay, if you pick that). It assumes the whole £10,500 allowance is free for this one hire, so if other staff already use some of it, the real NI will be higher. It divides the total by the hours they are paid for, and again by the hours they actually work once the holiday comes out (5.6 weeks unless you change the box).

• It does not work out the employee's own Income Tax or NI. That comes out of their pay, not on top, and Scotland has its own Income Tax bands. Employer NI, the minimum wage and auto-enrolment are UK-wide.
• It works on a yearly figure. Payroll does the same sums each pay period, so an irregular wage or a mid-year start can come out a few pounds different.
• It is an estimate, not tax or employment advice. Your payroll software or accountant has the final say.

A first employee, worked through

Say you are a plumber who has worked alone for years and you take on a 25-year-old improver at £13.00 an hour, 40 hours a week. You claim Employment Allowance and use the 3% pension minimum on qualifying earnings. These are the calculator's starting figures, and this is what it does:

• Salary: £13.00 × 40 hours × 52 weeks = £27,040.
• Minimum wage check: £13.00 against £12.71 for 21 and over. Passes.
• Employer NI before the allowance: (£27,040 minus £5,000) × 15% = £22,040 × 0.15 = £3,306.
• After Employment Allowance: £3,306 is under the £10,500 allowance, so you pay £0.
• Pension: (£27,040 minus £6,240) × 3% = £20,800 × 0.03 = £624.
• Total cost a year: £27,040 + £0 + £624 = £27,664.
• Per paid hour: £27,664 ÷ 2,080 hours = £13.30.
• Per hour actually worked: with 5.6 weeks' holiday off, they work 46.4 weeks × 40 = 1,856 hours. £27,664 ÷ 1,856 = £14.91.

Employment Allowance and who can claim it

Employment Allowance takes up to £10,500 a year off your employer NI bill. For a small trade, that usually means a first employee costs no employer NI at all. HMRC lists £10,500 for 2026 to 2027, and £10,500 covers the NI on one salary of up to £75,000 (£5,000 plus £10,500 ÷ 15%).

A sole trader who takes on staff can claim: HMRC's payroll guide (CWG2) says a business here can be a company, a partnership or a self-employed individual. The old rule shutting out employers with £100,000 or more of NI ended on 6 April 2025.

The catch for limited companies is the director rule. Per gov.uk's eligibility page, a company whose only employee paid above £5,000 is its director cannot claim. If you run a one-person company and pay yourself a salary, your first proper employee is often what makes you eligible.

Other limits: only one company in a connected group can claim, you claim against one payroll, and domestic staff such as a nanny or gardener do not count. You claim through your payroll software each tax year, as it does not roll over on its own.

Apprentices and under-21s: NI relief and pay rates

For an apprentice under 25, employer NI is 0% on pay up to £50,270 a year, the apprentice upper secondary threshold. Above that it is 15%. Employees under 21 get the same relief up to the same figure, whether or not they are apprentices. Payroll uses category letter H for the apprentice and M for the under-21, as set out in HMRC's rates for each letter.

The relief has conditions. CWG2 says the apprentice must be on a UK government-recognised apprenticeship standard or framework, and you need a written agreement between you, the apprentice and the training provider naming it, with start and expected end dates. Keep that agreement: it is your evidence for using the zero rate.

The minimum wage rates from 1 April 2026 are £12.71 an hour for 21 and over, £10.85 for 18 to 20, £8.00 for under-18s and £8.00 for apprentices. The apprentice rate covers apprentices under 19, and those 19 or over in the first year of their apprenticeship. After that first year, a 19-year-old moves to the rate for their age.

Pension is different for young starters. Automatic enrolment only covers staff aged 22 to State Pension age earning over £10,000. A 17 or 18-year-old apprentice can ask to join, and you cannot refuse. The Pensions Regulator says that for staff earning £520 a month or less, you set the pension up but do not have to pay in.

Costs the payroll figure leaves out

The wage, NI and pension are the costs a payroll calculator can see. A trade hire brings others, and some are legal duties from day one. None of them are in the calculator's total, so add your own figures when you price the job.

Putting the cost into your prices

Price labour from the cost per hour worked, not the hourly wage. In the example, a £13.00 improver costs you £14.91 for every hour they are on the job, before insurance, kit or any profit.

Not every hour they work can be billed. Travel, collecting materials and snagging all count. If you reckon three hours in four end up on an invoice, that is 1,856 × 0.75 = 1,392 billable hours, and £27,664 ÷ 1,392 = £19.87 per chargeable hour, still before overheads and profit. That 75% is only an example, so use your own diary.

Then add your margin. The margin calculator shows the difference between a markup on that cost and a true margin. If you also want to check your own rate now there are two of you, the day rate calculator works it out from your yearly costs.

Common questions