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Summary
The employer cost calculator shows the true cost of employing someone beyond their gross salary. An employee earning £50,000 costs significantly more than £50,000 to employ, once employer National Insurance contributions, pension contributions, and other statutory costs are factored in. This calculator helps businesses understand the full cost of a hire and helps employees appreciate the gap between their salary and their total employment cost.
How it works
Employer National Insurance (from April 2025)
Employers pay secondary Class 1 NICs at 15% on all employee earnings above the secondary threshold of £5,000 per year (£417/month). This is separate from the employee’s own NI contributions.
Key change for 2025-26: the rate increased from 13.8% to 15%, and the threshold dropped from £9,100 to £5,000, significantly increasing employer costs.
Workplace pension (auto-enrolment)
Under auto-enrolment, employers must contribute at least 3% of qualifying earnings (£6,240 to £50,270) to a workplace pension. Many employers contribute more — 5-10% is common for professional roles.
Other statutory costs
- Apprenticeship Levy: 0.5% of total pay bill for employers with annual wage bills over £3 million
- Employer’s liability insurance: legally required, typically £500-£2,000/year per employee
- Statutory sick pay (SSP): £116.75/week (2025-26) for eligible employees
- Holiday pay: already included in salary but represents a real cost for the hours not worked
The formula
Total employer cost = Gross salary + Employer NI + Employer pension + Other costs
Where:
- Employer NI = (Gross salary - £5,000) x 15%
- Employer pension = Qualifying earnings x contribution rate (min 3%)
Worked example
Employee salary: £50,000, 5% employer pension
- Employer NI: (£50,000 - £5,000) x 15% = £6,750
- Employer pension: (£50,000 - £6,240) x 5% = £2,188 (on qualifying earnings)
- Total employer cost: £50,000 + £6,750 + £2,188 = £58,938
- The employee costs 17.9% more than their gross salary
For a £100,000 employee with 10% pension:
- Employer NI: (£100,000 - £5,000) x 15% = £14,250
- Employer pension: £10,000 (on gross, common for higher earners)
- Total: £124,250 (24.3% above gross salary)
Inputs explained
- Gross salary — the employee’s annual salary before any deductions
- Employer pension % — the employer’s pension contribution rate
- Apprenticeship levy — whether the employer has a wage bill over £3 million
Outputs explained
- Total employer cost — the full annual cost to employ this person
- Employer NI — the secondary NIC amount
- Employer pension — the pension contribution amount
- Cost premium — how much the total cost exceeds the gross salary, as a percentage
Assumptions & limitations
- Employment Allowance (£10,500 from April 2025) can offset employer NI for eligible businesses, but is not included in this per-employee calculation.
- Does not include recruitment costs, training, equipment, office space, or other overheads.
- Pension contributions may be calculated on gross salary or qualifying earnings depending on the employer’s scheme design.
- For salary sacrifice arrangements, employer NI is calculated on the reduced salary, and the employer may pass their NI saving into the employee’s pension.