Understanding the true cost of employing someone involves more than looking at their salary. UK employers may also need to budget for employer National Insurance, workplace pension contributions, holiday pay and other employment-related costs.For the 2026–27 tax year, the standard employer Class 1 National Insurance rate is 15% above the applicable Secondary Threshold. The general annual Secondary Threshold remains £5,000 for 2026–27, although different rules and thresholds can apply to certain categories of employees.
This means employers should consider National Insurance when budgeting for new employees. An advertised annual salary does not necessarily represent the full cost of employing that person.Eligible businesses and charities may also be able to reduce their employer National Insurance bill using the Employment Allowance. For the 2026–27 tax year, the maximum Employment Allowance is £10,500, subject to the eligibility rules.Minimum wage is another essential payroll consideration. From 1 April 2026, the National Living Wage for workers aged 21 and over is £12.71 per hour. The rate for workers aged 18 to 20 is £10.85, while the under-18 and qualifying apprentice rates are £8.00 per hour.
Employers need to make sure workers receive at least the appropriate minimum wage for their age and circumstances. Rates are normally reviewed each year, so payroll systems should be updated when new rates take effect.Employers should also remember that salary and National Insurance are not the only employment costs. Workplace pension contributions may apply where employees meet the relevant automatic-enrolment requirements.
Holiday entitlement, statutory payments and employee benefits can also increase the overall employment cost.
This is why businesses should prepare a complete employment budget before hiring. A company may be able to afford an employee’s basic salary but still experience cash-flow pressure if employer taxes and other payroll costs were not included in the calculation.
Accurate payroll forecasting can be particularly important for businesses with large numbers of hourly employees, such as retailers, hospitality businesses and service companies. Even relatively small changes in hourly pay can have a significant impact when multiplied across many employees and working hours.
Payroll software can help calculate PAYE, National Insurance and other deductions, but businesses should still regularly review their payroll costs against budgets and cash flow.
Employers should also check whether they are entitled to Employment Allowance and ensure that any claim is made correctly through the appropriate payroll reporting process.
At EasyFig, we help businesses understand their payroll costs, calculate employee pay and employer contributions and maintain accurate payroll records.
Need help managing your payroll costs? Book a free consultation with EasyFig today.