Free Holloway Davies research guide
Employing staff and payroll guide
The true loaded cost of an employee in 2026/27, including employer NIC, Employment Allowance, auto-enrolment pension and what else to budget for when you hire.
Tax year: 2026/27. Last reviewed: Mon Apr 06 2026 00:00:00 GMT+0000 (Coordinated Universal Time).
Cost of hire model (Excel)The true cost of a hire
When you offer someone a £30,000 salary, you are not paying £30,000. Before they arrive at their desk you will also pay employer NIC, an auto-enrolment pension contribution, and potentially payroll administration costs. The model calculates the statutory floor; real all-in cost including software, equipment and training is typically 10 to 20% higher.
Employer National Insurance in 2026/27
Employer Class 1 NIC (secondary NIC) is charged at 15% on earnings above the secondary threshold of £5,000 per year per employee. Both the rate and the threshold changed at the Autumn Budget 2024 (from 13.8% and £9,100) and are unchanged for 2026/27.
At a £30,000 salary: (£30,000 - £5,000) x 15% = £3,750 employer NIC.
Employment Allowance
The Employment Allowance offsets up to £10,500 of employer NIC per year in 2026/27 (it rose from £5,000 in 2024/25; the previous £100,000 NI bill cap was removed from 6 April 2025).
Critical restriction: a company where the director is the only person paid above the secondary threshold does NOT qualify. You need at least one genuine, non-director employee. The cost-of-hire model shows an "Employment Allowance not applied" warning when you have only one employee, regardless of the toggle setting, to match the actual legal position.
Once you have two qualifying employees, the allowance covers the first £10,500 of your combined employer NIC before you pay anything further to HMRC.
Auto-enrolment pension
If an employee earns more than £10,000 per year and is aged 22 to state pension age, you must auto-enrol them and contribute at least 3% of qualifying earnings. Qualifying earnings for 2026/27 are the slice between £6,240 and £50,270.
At a £30,000 salary: qualifying earnings = £30,000 - £6,240 = £23,760. Employer pension at 3% = £712.80.
Most employers offer higher contributions as part of a competitive package; the model calculates the statutory minimum 3% floor only.
Total employer cost: worked example
| Item | Amount |
|---|---|
| Gross salary | £30,000 |
| Employer NIC (no EA) | £3,750 |
| Employer pension (3%) | £713 |
| Total annual cost | £34,463 |
| Monthly cost | £2,872 |
Payroll administration
You must run payroll through HMRC's Real Time Information (RTI) system, submitting a Full Payment Submission (FPS) on or before each pay day. If you have no payroll in a period, an Employer Payment Summary (EPS) may be needed. Late submissions can trigger automatic penalties. Most businesses use payroll software (Xero, QuickBooks Payroll, Sage Payroll, or a bureau) rather than doing this manually.
What else to budget for
The statutory floor understates total employment cost. Also budget for:
- Software licences per seat (Slack, Google Workspace, your internal tools)
- Hardware and equipment
- Training and professional development
- Recruitment costs (recruiter fees typically 15 to 25% of first-year salary)
- Any enhanced benefits: private health, life cover, higher pension match
- Statutory sick pay (SSP) exposure in periods of absence
- Payroll bureau or accountant cost if you outsource the processing
Directors on payroll
A director is treated as an employee for PAYE purposes. Even a nominal salary of £5,000 or £12,570 needs to go through RTI. A common mistake is to pay the salary and file the returns inconsistently; HMRC cross-checks both and penalties apply to late or missing submissions.
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