The True Cost of Employing Someone in the UK: 2026-27 Numbers
By Robert Marjoram, Director, Together Accounting | April 2026
That’s what a £28,000 employee actually costs you to employ in 2026-27, once employer national insurance and the minimum workplace pension are added in. If you budgeted £28,000 and thought you were done, you’re already £4,102 short before anyone takes a single day off sick.
We’re having this conversation with clients every week right now. The rates changed on 1 April, payroll software has caught up, and directors are opening their first proper payroll run of the new tax year and wondering why the number at the bottom looks so much bigger than it did twelve months ago. You’re not imagining it. The numbers confirm what you’re experiencing.
Employer costs for 2026-27: the key figures
Before we get into the working examples, here are the figures that matter for every small employer in the UK this tax year:
- National Living Wage (age 21+): £12.71 per hour from 1 April 2026, up 4.1% from £12.21
- Employer NI rate: 15% (unchanged from 2025, but up from 13.8% in 2024-25)
- Secondary threshold (where employer NI starts): £5,000 per year, frozen until at least April 2031
- Employment Allowance: £10,500 per year, with the £100,000 cap now gone
- Minimum employer pension contribution: 3% of qualifying earnings above £6,240
- Statutory Sick Pay: £123.25 per week, payable from day one of illness
| 15% Employer NI rate |
£5,000 Secondary threshold |
£12.71 NLW per hour |
£10,500 Employment Allowance |
That last point is new and most clients have missed it. The three-day SSP waiting period has been scrapped, and the Lower Earnings Limit qualification for Statutory Sick Pay has gone too. Every eligible employee now gets SSP from day one of sickness, regardless of how little they earn. The FSB estimates this change alone adds around £990 a year to the cost of employing nine people.
Why the real cost of employing someone always exceeds the salary
Here’s the thing nobody’s properly explaining to first-time employers. When you offer someone £28,000, that £28,000 is what lands in their gross pay slip. Your cost as the employer is a different number entirely, and it gets bigger every time the government freezes a threshold or tweaks a rate.
There are three mandatory cash costs you pay on top of salary:
- Employer national insurance at 15% on every pound above £5,000
- Employer pension contributions at a minimum 3% on qualifying earnings above £6,240
- Statutory add-ons like SSP, maternity pay, holiday pay (already baked into salary) and employers’ liability insurance
Add those up and the gap between “salary offered” and “cost to business” usually sits between 14% and 17% for anyone earning between minimum wage and £60,000. That gap has widened significantly since 2024, and it’s almost entirely down to two decisions made by the Chancellor: the employer NI rate going from 13.8% to 15%, and the secondary threshold being chopped from £9,100 to £5,000.
The true cost at four salary levels
Here’s the table I wish every director had in front of them before they made their next hiring decision. These are the mandatory employer costs for 2026-27, before you add anything like employers’ liability insurance, recruitment fees, equipment, training, or any kind of bonus or benefit.
| Cost item | NLW full-time (£24,785) | £28,000 | £40,000 | £55,000 |
|---|---|---|---|---|
| Gross salary | £24,784.50 | £28,000.00 | £40,000.00 | £55,000.00 |
| Employer NI (15% above £5k) | £2,967.68 | £3,450.00 | £5,250.00 | £7,500.00 |
| Employer pension (3% above £6,240) | £556.34 | £652.80 | £1,012.80 | £1,462.80 |
| Total cost to business | £28,308.52 | £32,102.80 | £46,262.80 | £63,962.80 |
| Extra cost above salary | £3,524.02 | £4,102.80 | £6,262.80 | £8,962.80 |
| As % above gross salary | 14.2% | 14.7% | 15.7% | 16.3% |
True annual cost to business (salary + employer NI + pension)
| NLW full-time (£24,785 salary) |
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| £28,000 salary |
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| £40,000 salary |
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| £55,000 salary |
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Source: HMRC rates and thresholds 2026-27. Includes employer NI at 15% above £5,000 and minimum pension at 3% above £6,240. Excludes employers’ liability insurance and other non-statutory costs.
A few things jump out. The percentage uplift climbs with salary because employer NI is a flat 15% with no upper limit, so higher earners cost proportionally more. Even at National Living Wage, you’re paying roughly £3,500 a year in additional costs on top of the headline wage. And at £55,000 you’re just shy of £9,000 in additional costs, enough to fund a decent chunk of a part-time hire on its own.
How employer NI costs have changed since 2024-25
If you employed someone in 2024 and you’re now wondering why your payroll feels so much heavier, this next table explains it. I’ve taken an employee on £28,000 and run the numbers three ways.
| 2024-25 | 2025-26 | 2026-27 | Change 2024 to 2026 | |
|---|---|---|---|---|
| Employer NI rate | 13.8% | 15.0% | 15.0% | +1.2 percentage points |
| Secondary threshold | £9,100 | £5,000 | £5,000 | −£4,100 |
| Annual employer NI bill | £2,608.20 | £3,450.00 | £3,450.00 | +£841.80 |
| % increase in NI bill | — | — | — | +32.3% |
|
2024-25 £2,608 13.8% rate · £9,100 threshold |
→ |
2026-27 £3,450 15% rate · £5,000 threshold · +32.3% |
⚠ Frozen until 2031
The secondary threshold stays at £5,000 until at least April 2031. For a five-employee business averaging £28,000 each, that is around £4,200 more in employer NI every year compared to 2024-25 — and it does not reduce as wages rise.
A 32% increase in the employer NI bill on the same salary in two years. That’s not inflation. That’s a deliberate policy decision, and it’s locked in until at least April 2031 after the Autumn Budget 2025 extended the freeze by a further three years. We covered the wider picture in our analysis of the Autumn Budget 2025 and the broader squeeze on small employers in our watershed moment article.
For a business with five employees averaging £28,000 each, the difference between the 2024-25 NI bill and the 2026-27 NI bill is around £4,200 a year. That’s real cash, and it’s coming straight off your bottom line.
The Employment Allowance: the single biggest break for small employers
Before you despair, there’s one piece of genuinely good news buried in all this. The Employment Allowance is now £10,500 per year, and the old £100,000 previous-year NI cap has been scrapped. If you had any NI liability at all last year and you’re not a single-director company, you can claim it.
Here’s what that means in practice. If you’re running a small limited company with two employees on £28,000 each, your gross employer NI bill is £6,900. Claim the Employment Allowance and the first £10,500 of employer NI is wiped out entirely. You pay zero employer NI for the year. Nothing.
That allowance now covers small employers to a level it simply didn’t before. The old £5,000 allowance would have left you paying £1,900 on that same payroll. The doubling to £10,500 is the single most useful change in the employer cost calculations for small businesses right now, and we still meet directors every month who don’t realise they can claim it.
Employment Allowance 2026-27: what you need to know
|
£10,500 per year |
£100k cap removed |
|
2 employees at £28k = £0 NI |
Single-director companies excluded |
|
Must be claimed each tax year |
Covers most small teams in full |
Important catch: if you’re a single-director limited company with no other employees on payroll, you can’t claim the Employment Allowance. This was tightened up years ago to stop one-person companies using it to wipe out the director’s own employer NI. The moment you bring on a second employee (who earns above the secondary threshold and is liable for employer NI), the company qualifies. If you’re in this position, it’s worth looking at our guide to the optimal director salary for 2026-27 too, because the salary level you choose still drives how much NI you pay.
A working example: the first hire that almost didn’t happen
Working example: Take a Norwich-based design agency turning over around £110,000 a year, run by a sole director who has been operating solo for four years and now wants to bring on a mid-level designer at £32,000. The cash flow forecast budgets £32,000 and the founder is ready to go.
Run the real numbers. At £32,000, the employer NI works out at £4,050, the minimum pension at £772.80, and employers’ liability insurance lands at around £180. Total first-year cost: roughly £37,000 before recruitment fees and any equipment. That’s £5,000 over the original budget.
This is where the Employment Allowance changes the picture. Because the company is a limited company and the new starter is the first employee (other than the founding director), the business becomes eligible for the full £10,500 Employment Allowance. That wipes out the entire employer NI bill for the year and drops the real first-year cost to around £33,000, which the business can absorb.
The lesson: you can’t make confident hiring decisions on headline salary numbers. The full calculation has to be done, and the reliefs the business qualifies for have to be claimed.
A second working example: when five hires became four
Working example: Consider a trades business with four employees on average wages, planning to take on a fifth at £30,000. On the face of it, straightforward. Once the 2026-27 NI (£3,750), pension (£712.80) and employers’ liability insurance (around £140) are added in, the real cost lands at around £34,603. The Employment Allowance is already fully used up against the existing team’s NI liability, so there is nothing left to offset the new hire.
A different call works better. Instead of hiring a fifth employee, the existing four each get a £1,400 pay rise (total cost including NI and pension: roughly £6,600), and the balance funds a subcontractor for the peak months. Same output, better margin, and less fixed cost on the books.
That’s the kind of decision a director can only make when the real numbers are on the page.
How to calculate the true cost of an employee: your quick employer cost calculator
If you want a back-of-envelope calculator for any salary between £10,000 and £50,000, here’s the formula we use in client meetings:
For a £35,000 employee: £35,000 + £4,500 + £862.80 = £40,362.80.
Bookmark that as your employer cost calculator for any new hire decision in 2026-27. Add around £150 to £300 for employers’ liability insurance, and build in a contingency for SSP (now from day one), maternity or paternity pay if it’s likely, holiday cover, and any training or equipment. For most roles you’re looking at a realistic all-in cost of salary plus 18% to 22% once everything is factored in.
Don’t forget the indirect additional costs
The statutory numbers are only half the story. Before you sign off on a hire, budget realistically for the one-off and recurring extras:
- Recruitment fees: £500 to £3,000 for most roles, more for senior or specialist hires
- Equipment and software: £200 to £1,500 for a laptop, phone, desk, and licences
- Training and onboarding: £300 to £800 in the first year, plus your own time
- Workspace costs: desk space, utilities, and any pro-rata rent share
- Benefits and perks: private healthcare, enhanced pension, or wellbeing schemes if you offer them
None of these are statutory, but every one of them is a real cost that leaves your bank account. We see directors trip over the recruitment fee in particular, because it lands as a lump sum in the month you hire and it isn’t on the payroll calculation at all.
National Living Wage 2026: what the increase costs employers
If you employ staff on National Living Wage, the 4.1% increase from 1 April matters more than the headlines suggest. For a full-time NLW worker on 37.5 hours a week, annual pay has gone from £23,810 in 2025-26 to £24,785 in 2026-27. That’s an extra £977 per employee in gross pay, plus another £147 in employer NI and £29 in pension. Total annual uplift per NLW employee: around £1,153.
Multiply that across a team of ten and you’re looking at an extra £11,500 a year in payroll, before you’ve priced in a single other change. Independent research from the FSB on a typical nine-employee firm found employment costs rising by nearly £26,000 a year between January 2025 and April 2026 once all the changes were factored in. That’s not a rounding error. That’s a business-critical number.
What every small employer should do in 2026-27
If you’re running payroll for 2026-27, here’s what we’d tell you to do this month:
- Check your Employment Allowance claim is switched on. Log into your payroll software or ask your bookkeeper to confirm it’s been claimed for 2026-27. It must be claimed each tax year, it doesn’t roll over automatically.
- Run the true-cost calculation for every employee. Not just the total payroll bill, but the per-head real cost including NI and pension. That’s the number you need for any hiring, pay rise, or redundancy decision.
- Review your SSP policy. With day-one SSP and no earnings threshold, you’ll pay more in sick pay in 2026-27 than you did in 2025-26. Update your budget line for it.
- Model your next hire before you post the advert. Use the formula above. If the numbers don’t work, don’t start the recruitment process and then try to make them fit afterwards.
- Book a conversation with your accountant if anything in this article is news to you. The cost of getting this wrong once, on a single hire, is higher than a year of decent accounting advice.
Frequently asked questions
How much extra does it cost to employ someone in the UK?
Between 14% and 17% on top of gross salary for employees earning between minimum wage and £60,000, once employer NI and minimum pension contributions are included. Add another 2% to 4% for SSP, employers’ liability insurance, and holiday cover. For most roles that puts you at salary plus 18% to 22% all-in.
How much is employer NI in 2026?
15% on earnings above the £5,000 secondary threshold. That rate is unchanged from 2025-26 but it’s higher than the 13.8% that applied until April 2025. The threshold is frozen at £5,000 until at least April 2031 after the extension announced in the Autumn Budget 2025.
Does the Employment Allowance remove employer NI completely?
Only up to £10,500 of annual employer NI liability. Once your total employer NI bill exceeds £10,500 for the year, you pay the rest as normal. For a business with three or four employees on average salaries, the allowance often covers the full NI bill.
What are the hidden costs of employing someone?
Beyond salary, NI and pension, the biggest ones are employers’ liability insurance (£150 to £300 a year for most small firms), recruitment fees (£500 to £3,000), equipment and software (£200 to £1,500), training, holiday cover, and the new day-one SSP liability. None of these show up on a headline salary figure but they all hit your bank account.
Will the minimum wage go up again in 2026-27?
The current rates took effect on 1 April 2026 and apply for the full tax year. The next increase will be announced in autumn 2026 and apply from 1 April 2027.
Where this leaves you
The true cost of employing someone in 2026-27 is higher than it’s ever been, and the frozen thresholds mean it’s going to stay that way until at least 2031. That’s the bad news. The good news is that the Employment Allowance now does real work for small employers, and the businesses that run the numbers properly before they hire are making sharper, more profitable decisions than those that don’t.
If you’re planning a hire, a pay review, or a team restructure in the next few months and you want to see the real numbers for your specific situation, take a look at our payroll and bookkeeping support or get in touch below.
Sources & Further Reading
HMRC and GOV.UK:
This article provides general guidance based on legislation and practice as at April 2026. Tax and employment law are complex and fact-specific. The information here should not be relied upon as advice for your particular circumstances. Please consult a qualified accountant or professional advisor for guidance tailored to your situation.