Employee Cost Breakdown Calculator

An employee's real cost begins with the salary and keeps going. Employer National Insurance takes 15% of earnings above £5,000 for 2026/27, and workplace pension contributions run at a minimum 3% of qualifying earnings, the band from £6,240 to £50,270. Employer's liability insurance is compulsory on top of that. Employer NI and the minimum pension together add about 15% to 16% to salaries from £30,000 upwards (on £40,000, £5,250 of NI and £1,012.80 of pension, or 15.7%), before the insurance premium. Employers whose total pay bill passes £3m also pay the Apprenticeship Levy at 0.5% of the whole pay bill less a £15,000 annual allowance, which the calculator leaves out because it depends on the pay bill rather than one salary, and statutory paid holiday accrues through the year whether or not anyone takes it.

Discretionary costs are where budgets diverge. Private medical insurance averages £1,000 to £2,000 per employee. Training and development typically absorbs 1% to 3% of salary, and rather more in technical roles. Equipment such as a laptop, phone and software licences comes to about £1,500 to £3,000 as a one-off, with roughly £800 a year of software subscriptions afterwards. Recruitment through an agency costs 15% to 25% of the salary, and any bonus or profit-sharing scheme sits on top of all of it.

Space and supervision rarely appear in a salary review but are real money. A desk costs £500 to £1,500 a month per employee in London and £200 to £500 elsewhere. Every direct report also absorbs something like 10% to 20% of a salaried manager's time, a cost carried quietly by the payroll rather than by the role being filled.

Absence and family leave belong in the picture too. Statutory sick pay runs at £123.25 a week for up to 28 weeks. Maternity and paternity pay is largely reclaimed from government, although the money leaves the business first and returns later, so it lands as a cash flow problem rather than a permanent cost. Neither is predictable for a single hire, which is why both are easier to plan across a team than one salary at a time.

The breakdown itemises all of this so the total is visible rather than assumed. Enter the salary, the employer pension rate as a percentage of qualifying earnings, the yearly cost of benefits such as private medical cover, training and equipment, and any recruitment fee, which is spread over 3 years. The output gives the total cost per employee, the cost per working day and per hour, and the overhead as a percentage of salary, which is the figure to budget headcount against. As a rough sense check, a £40k salary costs £46,262.80 once employer NI and the minimum pension are counted, before insurance and anything discretionary.

Setting that against a contractor changes the framing. A contractor at £450 a day over 220 working days costs £99,000, while a permanent hire on £75k fully loaded comes to about £94k. The contractor takes no holiday or sick pay, carries no pension liability, can be ended easily and is productive from the first day. The permanent employee needs training and development, has to be retained, and brings redundancy liability. Short engagements under 6 months and peaks in demand favour the contractor, while steady long-term work favours the employee, about 5% cheaper on these figures at full utilisation.

Salary sacrifice is the one lever that cuts employer cost rather than adding to it. Where an employee sacrifices salary into a pension, the employer saves the 15% National Insurance on the sacrificed amount, plus 0.5% Apprenticeship Levy where it applies, so £1,000 sacrificed saves £155. Better employers hand that saving back as an extra pension contribution, turning £1,000 into £1,155 for the employee at no cost beyond the administration. It raises the value of the package without touching the salary budget, and is worth setting up if your scheme does not already do it. The saving is due to shrink: from 6 April 2029 only the first £2,000 a year of pension contributions sacrificed by each employee will be free of National Insurance, with employer and employee NI charged on anything above that.