What an employee
actually costs you.
Salary is about four fifths of it. Employer National Insurance at 15% above a £5,000 threshold, the pension, and the on-costs of putting somebody on a site make up the rest.
Published ·4 min read·Written by Unibuild
Salary is roughly four fifths of the answer. On 2026/27 rates, employer National Insurance runs at 15% on earnings above a £5,000 secondary threshold, the workplace pension minimum is 3% of qualifying earnings between £6,240 and £50,270, and a site-based role then carries a van, fuel, tools, PPE, a phone and scheme cards on top.
The gap between the wage and the cost
Every hiring conversation happens in salary. Almost every business case that follows it is wrong, because salary is the number the employee sees and the cost is the number that leaves the account.
The gap is not a rounding difference. For an office role it is meaningful; for a site role with a van and tools it can change whether the hire is affordable at all. And it compounds into pricing, because a labour rate built on the wage rather than the all-in cost underprices every job that person works on, which is one of the four leaks named in how to tell whether you are underpricing.
The statutory additions
Rates below are for 2026/27 and were checked on 20 August 2026. All of them move, so confirm before relying on them.
- Employer National Insurance at 15% on earnings above the secondary threshold of £5,000 a year. That threshold is frozen until April 2031, which means the effective cost of employment rises with wages rather than being held down by an indexed allowance.
- Workplace pension. The employer minimum under automatic enrolment is 3% of qualifying earnings, the band between £6,240 and £50,270. Many firms pay more than the minimum, and any additional percentage is a straightforward addition to this figure.
- The National Living Wage is £12.71 an hour for workers aged 21 and over from April 2026, with lower rates for younger workers and apprentices. Relevant less as a cost line than as a floor: it moves the bottom of your rate structure and everything sitting close above it.
Worth being explicit that these are employer costs rather than deductions from the employee. Income tax and the employee National Insurance come out of the salary figure and are not additional to it.
The site on-costs, which decide most cases
This is the part an office-oriented calculator misses and the part that changes the answer for a contractor.
A site-based employee typically carries a van and its running costs, fuel, insurance, tools and their replacement, PPE, a phone, and the CSCS or scheme cards and training the role requires, with renewal cycles attached. None of it is optional and all of it recurs.
Add the ones firms forget: the time somebody spends supervising and inducting them, travel time where it is paid, and the cost of cover during holiday where the work genuinely has to continue.
Employment Allowance is per business
The Employment Allowance reduces an eligible employer National Insurance bill by up to £10,500 in 2026/27, and the £100,000 eligibility cap that previously limited it has been removed, so most employers can claim.
The thing to be careful about is that it is claimed once by the business, not once per employee. Dividing it into a per-head figure makes small teams look cheaper than they are and makes the marginal cost of the next hire look lower than it is. For pricing a hire, use the gross employer NI and treat the allowance as a separate reduction against the company total.
Why holiday is not a separate line
Most calculators add a figure for holiday and it double counts. Statutory holiday is paid time already inside the salary: the employee is paid for fifty-two weeks and works around forty-six or forty-seven of them, so the salary already carries it.
What holiday genuinely costs is cover, and only where the work has to continue while they are away. On a site role that might mean agency labour at a higher rate for several weeks. On an office role it often costs nothing measurable. Since that depends entirely on your business, it belongs in your own on-cost figure rather than in a general multiplier.
The number matters twice, and the second time is the one firms miss. Once when deciding whether to hire, which is a spreadsheet exercise the calculator handles. And continuously afterwards, because a labour cost rate is only useful if the hours it multiplies are real. Unibuild takes hours from a QR clock-in with a photograph and a server timestamp that cannot be back-dated, landing against the job on the day they are worked, and holds cost rates per person rather than by role. That is what turns an all-in rate from a pricing assumption into a measured cost you can compare against what you tendered.
Where to start, on Monday
Take one person you employ and work their real cost out: salary, employer NI on everything above £5,000, pension on qualifying earnings, then everything in the site on-costs list that applies to them. Compare it with the figure you have been using in your labour rates.
If the two differ, every price you have built on the lower one has been thin by that difference, on every hour that person worked.
The follow-up questions.
The arithmetic for your own figures is in the employee cost calculator.
What does an employee really cost an employer in the UK?+
Is holiday an extra cost on top of salary?+
How does Employment Allowance affect the cost of an employee?+
What is the National Living Wage in 2026?+
Why does the all-in labour cost matter for pricing?+
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