Taking on your first employee is a big step for a growing company, and the salary is only part of the cost. This guide sets out every cost for the 2026/27 tax year, using a £30,000 salary as the example, and shows how the Employment Allowance and Corporation Tax relief bring the real cost down. To try your own figures, use our cost of hiring calculator.
The three costs on top of salary
- Employer National Insurance: 15% of the employee's pay above £5,000 a year (the secondary threshold).
- Workplace pension: at least 3% of "qualifying earnings", the part of pay between £6,240 and £50,270, for employees aged 22 to State Pension age who earn over £10,000.
- Holiday: employees are entitled to 5.6 weeks of paid holiday a year: 5 days × 5.6 = for someone working five days a week. That is the maximum, so someone working six days a week also gets 28. Part-time staff get the same 5.6 weeks pro rata, for example 3 days × 5.6 = , and you can count bank holidays within the total. It is already part of the salary, but the work still needs covering.
Worked example: a £30,000 employee
| Cost | Working | A year |
|---|---|---|
| Salary | £30,000.00 | |
| Employer National Insurance | (£30,000 − £5,000) × 15% = £25,000 × 15% | £3,750.00 |
| Employer pension | (£30,000 − £6,240) × 3% = £23,760 × 3% | £712.80 |
| Total cost | £30,000.00 + £3,750.00 + £712.80 | £34,462.80 |
That is £34,462.80 ÷ 12 = a month, or £34,462.80 ÷ £30,000 = , so about £1.15 for every £1 of salary.
The Employment Allowance can cover the National Insurance
The Employment Allowance takes up to £10,500 a year off a company's employer National Insurance bill for 2026/27. Since April 2025 there is no longer a £100,000 limit on the previous year's bill, so most small and medium companies qualify.
The catch for owner-managed companies: a company cannot claim it if its only employee paid above the £5,000 threshold is a single director. Hiring your first non-director employee usually changes that, and the allowance then covers all the company's employer National Insurance, including on your own director's salary:
- Employer National Insurance on the new employee: £3,750.00.
- Employer National Insurance on a director's £12,570 salary: (£12,570 − £5,000) × 15% = .
- Total: £3,750.00 + £1,135.50 = , which is under £10,500, so the allowance covers it all.
With the allowance, the employee costs £30,000.00 + £712.80 = a year, and the company also stops paying the £1,135.50 on your own salary. Check that no connected company already claims it, as only one company in a connected group can.
The tax relief
Wages, employer National Insurance and employer pension are all deducted from the company's profits before Corporation Tax. How much tax that saves depends on the company's profits, because each band taxes an extra £1 of profit at a different rate. Using the cost with the Employment Allowance, £30,712.80:
| Company's profits | Tax on each extra £1 | Corporation Tax saved | Real cost after tax |
|---|---|---|---|
| Under £50,000 | 19% | £30,712.80 × 19% = | £30,712.80 − £5,835.43 = (÷ 12 = a month) |
| £50,000 to £250,000 | 26.5%, because of marginal relief | £30,712.80 × 26.5% = | £30,712.80 − £8,138.89 = (÷ 12 = a month) |
| Over £250,000 | 25% | £30,712.80 × 25% = | £30,712.80 − £7,678.20 = (÷ 12 = a month) |
The middle band saves the most, because marginal relief means each pound of profit there is taxed at 26.5%, more than the 25% main rate. These figures assume the company's profits stay in the same band after paying the employee. If the cost takes profits from one band into another, part of it is relieved at each rate. Our Corporation Tax calculator works out the exact figure.
Paying the minimum wage
From 1 April 2026 the National Living Wage for workers aged 21 and over is £12.71 an hour, and £10.85 for 18 to 20-year-olds. From 1 April 2027 it rises to £13.21 and £11.27, as announced in the Autumn Budget 2026. For a full-time role of 37.5 hours a week, the minimum salary is £12.71 × 37.5 × 52 = a year in 2026/27.
Other costs to budget for
- Statutory Sick Pay: from 6 April 2026 it is paid from the first day of sickness, at the lower of 80% of average weekly earnings or £123.25 a week.
- Employer's liability insurance: a legal requirement as soon as you employ someone, with cover of at least £5 million.
- Payroll: running payroll and reporting to HMRC each payday, plus the pension scheme's administration.
- Equipment and recruitment: a laptop, software licences and any recruitment fees.
Before your first employee starts
- Register as an employer with HMRC. You can do this up to two months before the first payday.
- Check their right to work in the UK before they start.
- Set up a workplace pension and tell the Pensions Regulator you have met your duties within five months of their start date.
- Claim the Employment Allowance through your payroll software at the start of each tax year. It does not carry over automatically.
Common questions
How much does it cost to employ someone on £30,000?
£34,462.80 a year before any allowance: £30,000 of salary, (£30,000 − £5,000) × 15% = of employer National Insurance and (£30,000 − £6,240) × 3% = of employer pension. If the Employment Allowance covers the National Insurance, the cost is £30,000 + £712.80 = .
Can my company claim the Employment Allowance?
Usually, once it employs someone other than a single director. A company whose only employee paid above the £5,000 threshold is its sole director cannot claim it. The allowance is up to £10,500 a year for 2026/27 and there is no longer a £100,000 limit on last year's National Insurance bill.
Do I have to pay into a pension for my employee?
Yes, if they are aged 22 to State Pension age and earn over £10,000 a year, you must enrol them automatically and pay at least 3% of their earnings between £6,240 and £50,270. The employee pays at least 5%, making 8% in total.
Is the cost of an employee tax-deductible?
Yes. Wages, employer National Insurance and employer pension contributions are all deducted from the company's profits before Corporation Tax, so each £1 of employment cost saves 19p, 26.5p or 25p of tax, depending on whether the company's profits are under £50,000, between £50,000 and £250,000, or over £250,000.
What do I need to do before my first employee starts?
Register as an employer with HMRC (you can do this up to two months before the first payday), take out employer's liability insurance with cover of at least £5 million, check their right to work in the UK and set up payroll and a workplace pension.
Sources: GOV.UK, Rates and thresholds for employers 2026 to 2027, Employment Allowance, automatic enrolment thresholds for 2026/27, National Minimum Wage and National Living Wage rates, register as an employer and employer's liability insurance, holiday entitlement; HM Treasury, Budget 2026 for the April 2027 wage rates.