What does a first employee really cost?

Salary is only the first line

A £30,000 salary does not mean a £30,000 hiring decision. The useful budget includes employer National Insurance, workplace pension contributions, recruitment and equipment, payroll administration, training and the time before the employee is fully productive. Separate recurring employment costs from one-off setup costs so the business can test both an ordinary year and the more expensive first year.

Start with the Payroll Cost Calculator and use the employee's actual salary, pension arrangement and likely recurring benefits. Keep a separate list for costs that the calculator cannot know, such as a laptop, specialist software, recruitment fees, insurance changes, workspace and management time.

Estimate employer National Insurance

For the 2026–27 tax year, HMRC lists the standard employer Class 1 National Insurance rate as 15% on earnings above the £5,000 annual secondary threshold. On a simple £30,000 salary using the standard category, that produces an illustrative annual employer NI cost of £3,750: £30,000 minus £5,000, multiplied by 15%.

That example is not a payroll result for every employee. Category letters, pay periods and reliefs can change the liability. Eligible employers may also be able to offset qualifying employer NI through Employment Allowance. Use current payroll software or professional advice for the actual calculation rather than treating the illustration as a filing figure.

Add the pension on the correct earnings base

Automatic-enrolment pension cost depends on eligibility and the scheme's definition of pensionable pay. GOV.UK says an employer must normally pay at least 3% of qualifying earnings, and the Pensions Regulator lists the 2026–27 qualifying-earnings band as £6,240 to £50,270 a year.

If the £30,000 employee is eligible and the scheme uses that standard band, a 3% employer contribution on £23,760 of qualifying earnings is about £712.80 a year. A scheme based on total pay, a higher employer rate or salary sacrifice can produce a different number, so record the assumption beside the estimate.

Build a first-year cost range

The illustrative recurring total is now £34,462.80 before benefits and administration: £30,000 salary, £3,750 employer NI and about £712.80 employer pension. Add realistic recurring costs such as payroll software, licences and training, then add one-off recruitment and setup costs separately.

For example, £1,200 of recurring software and support plus £3,500 of recruitment, equipment and onboarding would make the first-year planning total about £39,162.80. The following year could be lower because some setup costs do not repeat. Keep a cautious range instead of hiding uncertainty inside one precise-looking figure.

• Base case: expected salary, statutory on-costs and known operating costs.
• Cautious case: slower ramp-up, overtime cover, extra training or a recruitment fee.
• Decision case: the cash position and revenue needed before the start date is committed.

Convert the hire into a revenue hurdle

Revenue is not the same as money available to fund a hire. Divide the annual cost by the contribution margin—the percentage of each sale left after variable costs—to estimate the extra revenue required to cover it. If the ongoing cost is £36,000 and contribution margin is 40%, the revenue hurdle is £90,000. At a 60% contribution margin, it is £60,000.

Use the Break-even Revenue Calculator for that translation. Then challenge whether the employee will create capacity, protect existing revenue, reduce owner workload or remove another cost. Avoid assigning every future sale to the new employee when demand, sales activity or delivery capacity is still uncertain.

Test affordability before making the offer

Put the monthly payroll cost and the one-off setup payment into a cash-flow forecast using realistic dates. Run a downside case in which the hire starts on time but an important customer pays late or the employee takes longer to become productive. The lowest projected cash balance matters more than an annual profit total when payroll must be met each month.

Use the Hiring Affordability Calculator to compare monthly headroom before and after the hire. Set a cash floor, decide which warning would delay the start date and write down the evidence that would justify proceeding. This guide supports planning and is not payroll, pension, tax, employment-law or financial advice; confirm the employee's circumstances and current obligations before acting.

Official sources

• HMRC: Rates and thresholds for employers 2026 to 2027
• GOV.UK: Set up and manage a workplace pension scheme
• The Pensions Regulator: Automatic enrolment earnings thresholds