We’ve all heard the news, if you are an employer, your employee National Insurance Contributions are going up from 13.8 – 15%. What’s the big deal, right?
Unfortunately for employees and employers alike, that tiny 1.2% increase has way more of a widespread effect on you and the company you work for than you might like to think.
Which brought us to the question of, how much does it cost to employ someone from the UK in 2025? And what can employees expect in the next year?
Some key points to remember. In April 2025 the new budget will come into effect and will change the following –
- National Living Wage (minimum wage) – will increase from £11.44 per hour to £12.21 per hour for over 21.
- Employer National Insurance Contributions will increase from 13.8-15%.
- Employers currently pay 13.8% NIC on earnings over £9,100. This will increase to 15% on earnings over £5,000 in 2025, raising costs from £1,822 to £2,821.43 for a full-time employee.
Worth noting that only employers are negatively affected by any of these changes.
Costs Of Employment In The UK
When it comes to the costs of employment in the UK, it isn’t just simply your wages that an employer has to consider, its everything else. There are five main areas that need to be taken into account when working out the true cost. They are;
1. National Insurance Contributions
The first cost that you need to consider is the National Insurance contribution. You have to do this for every single employee. The contributions per employee vary from the amount they earn and also their age.
For employees that are over 21 years of age and are earning more than £175 per week, you will need to pay 13.8% of their earnings to National Insurance. But as we know this goes up to 15% as of April 6th.
On top of the regular contributions, you will also need to pay National Insurance on each and every cash bonus you give to your employees should that be part of their employment package.
2. Pension Contributions
When you’ve paid for the NI contributions, it’s time to contribute to the employee’s Workplace Pension. Pension contributions are a legal requirement and all employees who joined the company need to be on the pension scheme within three months of recruitment.
Employees can decide to opt out of the pension contribution plans. The minimum contribution to the pension fund is 8%, with the employer needing to provide a minimum of 3% and the rest by the employee.
3. Costs Of Benefits
As an employer, you will be in charge of providing your employees with benefits in the workplace. Employee benefits can vary from workplace to workplace and as an employer, you will have to include them as part of the costs of hiring someone to work for you.
From rewards such as employee of the month to the office night out, you will need to be the one to cover the costs of all those benefits. Additionally, transport subsidies (like a company car, bike or scooter) also come with their own cost.
Additionally, as the skill level of the role increases so do the benefits of a package to attract the best candidates. That can include private healthcare, expense accounts, petrol allowance which are all additional costs to employers.
4. Overhead Costs
When employing a new person, you will need to take into account all of the associated overhead costs. Overhead covers all the necessary equipment so that a new employee can work in their role successfully.
On top of that, you will need to provide them with a safe and comfortable working space which means additional office space, an increase in utility bills, coffee and tea, stationary etc.
Aside from remote working as an example, these costs are likely to be incurred by most businesses. An operational cost admittedly, but one that has a cost per head/ employee at the end of each year.
5. Working Hours/Productivity Costs
Productivity as far as a cost is one that is often overlooked. Even though most employees work from 9-5, they may not be able to focus on your core role all of the time. Then take into consideration things like outside influences, hangovers, relationships, financial issues and that percentage can crash further.
This is in addition to the likely 20 + days annual holiday per year per employee, as well as statutory sick pay, which does differ from employee to employee but still affects productivity rates. That is before more longer-term scenarios that might come into play such as maternity and parental leave, along with any employee that might have serious health issues.
Admittedly it is hard to quantify the exact cost, but it is likely one of the biggest struggles that employers face year to year, as the wellbeing and emotions of employees is often controlled by outside forces, and seldom anything to do with their employer. Unless they have just been stiffed on a promotion or pay rise obviously, then its very likely their employer is the reason for their downturn in productivity 😀
Minimum Wage And Average Salaries In The UK
Let’s take the average, 35-hour work week, where a person is working on a 9-5 schedule.
The National Living Wage (NLW) or minimum wage for short. Today £12.21 is the minimum pay every employee above 25 years of age needs to get per hour or more.
That means that, by the NLW, the employee should make a minimum of £20,512.80 a year.
The median average salary in the UK is £29,669 per annum, which is up some 6.8% since 2022.
Yearly Cost Of Employment: Example
When hiring someone in the UK, a good rule of thumb would be to take their salary and add around 75-100%, but it’s probably best to assume the higher end of that scale. This is a good way of assuming the full cost of the employment for that individual.
This is an estimate, though. Sometimes, that number is even higher as we illustrate in the following table:
| Expense | Annual cost |
| Salary (NLW) | £20,512 |
| Office rent per desk | £10,500 |
| Recruitment costs | £2,000 |
| National Insurance | £3,076 |
| Business energy bill (for five-person office) | £3,000/ £600pp |
| Training | £1,500 |
| Pension contributions | £600 |
| Work social function per head | £250 |
| Employers’ liability insurance (lowest estimate) | £70 |
| Total | £38,748.00 |
| Additional costs on top of salary. (£20,512) | £18,237= 89% of salary |
As we said before, better to assume costs at the higher end of the scale ;-( as this does differ from role to role. And when you bear in mind that the above is applied to a lower end salary, the costs involved in employing highly educated people with vast experience, the figures can be eye-watering from a business perspective. No wonder the boss is always trying to get you to work past 5pm.
Obviously as people are paid more you would assume there is a clear path within that role for them to recoup the vast investment made into them annually by their employer. But it is always a two-way street and life is seldom black and white when it comes to employment and the rights of workers versus the requirements and desires of a business.
A bit of food for thought next time the pay rise conversation comes up in the office.
