Total Employee Cost
Calculator UK

Employment Costs in United Kingdom

When employing workers in the UK, there are several additional costs that employers need to consider on top of the employees' salaries. These costs include:

National Insurance

Employers are required to pay National Insurance Contributions (NICs) based on their employees' earnings. The NICs consist of two components: the primary contributions, which are deducted from employees' wages, and the secondary contributions, which are paid by the employer. The rates and thresholds for NICs can change annually.

The current Class 1 NICs are contributions that apply to employed individuals earning above a certain threshold. The rates for Class 1 NICs are as follows:

• The employer's NIC rate for the tax year 2022/2023 is 13.8% on earnings above the secondary threshold of £9,100 per year.

This is based on the 2023/24 limits from the UK Government and includes the following:

• Lower earnings limit £6,396 per year
• Secondary threshold £9,100 per year
• Upper earnings limit £50,270 per year

Calculation is then based on:

Pensions

Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £5,000. You’ll pay less employers’ Class 1 National Insurance each time you run your payroll until the £5,000 has gone or the tax year ends (whichever is sooner).

You can only claim against your employers’ Class 1 National Insurance liability up to a maximum of £5,000 each tax year. You can still claim the allowance if your liability was less than £5,000 a year.

For employees, the NIC rates for the tax year 2023/24, are as follows:

• 12% on earnings between £12,750 and £50,270 per year.
• 2% on earnings above £50,270 per year.

Pensions

Employers in the UK are legally obligated to enrol eligible workers into a workplace pension scheme and make contributions to it. The specific pension requirements vary depending on factors such as the employee's age and earnings. The minimum contribution levels are set by law and are subject to change.

Total Minimum Contribution: 8% of an employee's qualifying earnings

Employer Minimum Contribution: 3% of an employee's qualifying earnings

Employee Minimum Contribution: 5% of an employee's qualifying earnings

Holidays and Leave

Employers must provide paid annual leave to their employees in compliance with the statutory requirements. Currently, UK law grants most workers a minimum of 5.6 weeks of paid leave per year, which is equivalent to 28 days for those working five days a week. Holiday leave entitlement typically includes public holidays, although the specific treatment of public holidays may vary depending on the employer's policies or employment contract.

The leave entitlement may be pro-rated for part-time workers. Additionally, employers must provide paid leave for other situations like maternity, paternity, adoption, and sick leave.

Employee Benefits

Apart from salary, employers may choose to offer additional benefits to attract and retain employees. These benefits could include private healthcare, life insurance, pension schemes with enhanced contributions, stock options, or childcare vouchers. The costs associated with providing these benefits will vary depending on the specific choices made by the employer.

Training and Development

Investing in employee training and development programs may be necessary to enhance skills and maintain a competent workforce. The costs associated with training programs, workshops, or conferences should be considered as part of the overall employment costs.

Payroll Taxes and Administration

Employers are responsible for deducting income tax and employee NICs from their employees' wages through the Pay As You Earn (PAYE) system. The administrative costs associated with payroll processing and ensuring compliance with tax regulations should also be factored in.