Employer NIC and the True Cost of an Employee in 2026/27

The salary on the job advert is not what an employee costs you. In 2026/27, once you add employer National Insurance at 15%, the minimum workplace pension contribution and, for larger payrolls, the apprenticeship levy, a £30,000 hire actually costs your business around £34,500 a year before you have bought them a laptop or a desk. This article works through the full numbers, so you can budget a hire properly rather than discovering the on-costs in your first payroll run.

To be clear about scope: this is the employer's side of the ledger, the cost of putting someone on your payroll. If you are a director wondering how National Insurance applies to your own salary, that is a different set of rules, covered in our guide to National Insurance for directors.

The Four Building Blocks of Employment Cost

Every employee's true cost is built from the same components:

• Gross salary, the figure you agree with the employee.
• Employer National Insurance, 15% of earnings above £5,000 in 2026/27, paid by you on top of salary.
• Employer pension contributions, a minimum of 3% of qualifying earnings under auto-enrolment.
• Apprenticeship levy, 0.5% of your pay bill, but only if that pay bill exceeds £3 million a year.

Employee National Insurance and income tax do not belong on this list. Those come out of the employee's gross pay through PAYE. They affect what lands in the employee's bank account, not what leaves yours.

Employer NIC in 2026/27: 15% Above £5,000

Employer (secondary Class 1) National Insurance is charged at 15% on each employee's earnings above the secondary threshold, which is £5,000 per year, £417 per month, for 2026/27^[1]. Both the rate and the threshold have been at these levels since 6 April 2025, when the rate rose from 13.8% and the threshold dropped sharply from £9,100.

Two features of employer NIC catch new employers out:

• There is no upper limit. Employee NI drops to 2% above the upper earnings limit, but employer NIC stays at 15% all the way up. On a £120,000 salary you pay 15% of £115,000, which is £17,250.
• The threshold is low. At £5,000, almost any real salary triggers employer NIC. Even a part-timer on £10,000 a year costs you £750 in employer NIC.

The 15% rate also applies as Class 1A NIC on most taxable benefits in kind, such as private medical insurance or a company car, so benefits carry their own NIC on-cost too^[1].

There are reliefs for specific groups. Employer NIC is zero-rated up to an upper secondary threshold for employees under 21, apprentices under 25 and armed forces veterans in their first year of civilian employment, among others^[1]. If you hire from these groups, your true cost drops materially: a 20-year-old on £28,000 saves you £3,450 of NIC compared with a 30-year-old on the same salary.

The Employment Allowance: Up to £10,500 Off

Before you panic about the numbers above, check whether you can claim the Employment Allowance. It reduces your total employer Class 1 NIC bill by up to £10,500 in 2026/27, claimed through your payroll software, and since April 2025 there is no eligibility cap based on the previous year's NIC bill^[2].

For a genuinely small team, the allowance can wipe out employer NIC entirely. Three employees on £30,000 each generate £11,250 of employer NIC; the allowance absorbs £10,500 of it, leaving just £750 to pay for the whole year.

The main exclusion to know about: a limited company cannot claim if its only employee paid above the £5,000 secondary threshold is also a director^[2]. So the classic one-person company paying a director's salary gets no allowance, which is one reason director salary planning is its own topic. Once you take on a second employee earning above the threshold, the allowance opens up.

In the worked examples below we show costs before the Employment Allowance, because the allowance is one pot shared across the whole payroll rather than a per-employee saving. When you are costing your first few hires, run the numbers both ways.

Pension Auto-Enrolment: The 3% Minimum

Under auto-enrolment you must contribute at least 3% of each eligible employee's qualifying earnings to their workplace pension, with total contributions (employer plus employee plus tax relief) reaching at least 8%^[3]. Qualifying earnings are the band between £6,240 and £50,270 a year, so the 3% applies to salary inside that band, not the whole salary.

Eligible employees are broadly those aged 22 to State Pension age earning over £10,000 a year. Employees outside that group can often opt in, and if they earn above £6,240 you must contribute for them when they do. Some employers contract to pay 3% of full basic salary rather than banded earnings, which is simpler to administer but slightly more expensive; the figures below use the statutory minimum on banded earnings.

The Apprenticeship Levy: 0.5%, But Only Over £3 Million

The apprenticeship levy is 0.5% of your total annual pay bill, offset by a £15,000 allowance, which means you only actually pay once your pay bill exceeds £3 million^[4]. Most small and medium businesses never pay a penny of levy. But if you are at or above that scale, every marginal hire carries an extra 0.5% on-cost, and we include it in the third example below.

Worked Example 1: £30,000 Salary

A full-time hire on £30,000, aged over 25, enrolled in your workplace pension at the statutory minimum, at an employer below the levy threshold:

• Gross salary: £30,000.00
• Employer NIC: (£30,000 − £5,000) × 15% = £3,750.00
• Employer pension: (£30,000 − £6,240) × 3% = £712.80
• Apprenticeship levy: £0 (pay bill under £3 million)
• True payroll cost: £34,462.80

The on-cost is £4,462.80, or 14.9% on top of the agreed salary. Put another way, when you offer £30,000 you are committing to spend close to £34,500.

Worked Example 2: £45,000 Salary

Same assumptions, at a £45,000 salary:

• Gross salary: £45,000.00
• Employer NIC: (£45,000 − £5,000) × 15% = £6,000.00
• Employer pension: (£45,000 − £6,240) × 3% = £1,162.80
• Apprenticeship levy: £0
• True payroll cost: £52,162.80

The on-cost has risen to £7,162.80, which is 15.9% of salary. The percentage creeps up as pay rises because the £5,000 NIC-free band and the £6,240 pension disregard shrink as a share of the total.

Worked Example 3: £70,000 Salary at a Levy-Paying Employer

A senior hire on £70,000 at an employer whose pay bill already exceeds £3 million, so the levy applies at the margin:

• Gross salary: £70,000.00
• Employer NIC: (£70,000 − £5,000) × 15% = £9,750.00
• Employer pension: (£50,270 − £6,240) × 3% = £1,320.90 (qualifying earnings are capped at £50,270)
• Apprenticeship levy: £70,000 × 0.5% = £350.00
• True payroll cost: £81,420.90

A smaller employer making the same hire without the levy would pay £81,070.90. Either way, a £70,000 offer is a commitment of well over £81,000 a year, and the employer NIC alone is nearly £10,000 because the 15% rate has no ceiling.

To run these numbers for your own salary levels, use our employer NI calculator, which applies the 2026/27 rate and threshold and shows the NIC cost per employee instantly.

The Marginal Cost of a Pay Rise

The same arithmetic applies to every pay rise you award. For an employee earning under the £50,270 qualifying earnings cap, a £1,000 rise costs you:

• £1,000 extra salary
• £150 extra employer NIC (15%)
• £30 extra pension contribution (3%)

That is £1,180, or £1,185 with the levy. A useful rule of thumb for 2026/27 budgeting: multiply any salary movement by 1.18 to get the real cost to the business. If you budget £5,000 for team pay rises and hand out £5,000 of salary increases, you have overspent by around £900.

What the Payroll Numbers Still Leave Out

The figures above are the mandatory payroll costs. The true cost of employment includes items that never appear on a payslip:

• Recruitment: agency fees commonly run at 15% to 25% of first-year salary, and even direct hiring costs advertising and management time.
• Equipment and software: laptop, licences, phone, desk space.
• Employer's liability insurance: a legal requirement for almost all employers.
• Payroll administration: running PAYE, RTI submissions and pension uploads yourself, or paying a bureau or accountant to do it.
• Paid absence: 5.6 weeks of statutory holiday means you buy roughly 46.4 working weeks of output for 52 weeks of cost, before sickness.

None of these change the payroll arithmetic, but they matter when you are deciding whether a hire pays for itself. A £30,000 employee delivering value for 46 working weeks at a £34,500 payroll cost needs to generate meaningfully more than £750 of value per working week before overheads for the hire to wash its face.

One Piece of Good News: Corporation Tax Relief

Salary, employer NIC, pension contributions and the levy are all deductible against your company's taxable profits. At the 19% small profits rate, the £34,462.80 cost of the £30,000 hire comes down to a net £27,914.87 after corporation tax relief; at the 25% main rate, £25,847.10. The relief is real, but it only helps a profitable company, and it never turns an unaffordable hire into an affordable one.

Getting Set Up Properly

If this is your first employee, the mechanics come before the maths: you need to register as an employer for PAYE before the first payday, choose payroll software that files RTI submissions, and set up a workplace pension scheme with automatic enrolment from day one. If the "employee" is you, running a salary through your own company, the setup is simpler but the NIC rules differ; our guide to payroll for one employee covers that case.

Budget every hire at salary plus roughly 15% to 16% in on-costs, check your Employment Allowance position, and use the employer NI calculator before you make the offer, not after. The businesses that get caught out are the ones that discover employer NIC exists when the first PAYE bill arrives.

Sources

1. gov.uk: Rates and thresholds for employers 2026 to 2027 - GOV.UK
2. gov.uk: Employment Allowance - GOV.UK
3. gov.uk: Workplace pensions: what you, your employer and the government pay - GOV.UK
4. gov.uk: Pay Apprenticeship Levy - GOV.UK