The True Cost of an Employee

When you've never employed anyone before, the first shock is how much it actually costs — and how little of that money goes into the person's pocket.

You think you're hiring someone at £12 an hour. What you're actually taking on is:

• Employer's National Insurance contributions — currently 13.8% on earnings above the threshold. That's a significant chunk on top of every pound you pay.
• Workplace pension — auto-enrolment is mandatory. You must contribute at least 3% of qualifying earnings. It's not optional, and there are fines if you get it wrong.
• PAYE administration — you're now responsible for calculating and deducting income tax and employee NI from every payslip, reporting it to HMRC in real time, and paying it over monthly.
• Holiday pay — every employee is entitled to 5.6 weeks of paid holiday. That's 5.6 weeks where you're paying someone who isn't there, and you still need the work done.
• Statutory sick pay, maternity/paternity pay — these are legal obligations, not optional extras.
• Employer's liability insurance — legally required from day one.

Add it all up and that £12-an-hour employee is costing you closer to £16 or £17 an hour before you've even factored in the time you spend on admin. If you're not prepared for that gap, your cash flow projections are wrong from the start.