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Insight · Commercial

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 ·Updated ·4 min read·Written by

A team working together at a shared table

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.

What does an employee actually cost, beyond the wage?

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.

What are the statutory additions to a wage?

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’s 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.

Where this touches the platform

The number matters twice, and the second time is the one firms miss. Once when deciding whether to hire, which is a spreadsheet exercise. 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.

QR clock-in timesheets Cost control Savings calculator For office staff

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.

Sources

Checked against the source rather than against commentary. Where a schedule, a rate or a threshold is definitive on a government site, read it there.

Asked most often

The follow-up questions.

The same arithmetic on your own figures, at full employer cost, is in the savings calculator.

What does an employee really cost an employer in the UK?
Salary plus employer National Insurance at 15% on earnings above the £5,000 secondary threshold, plus the workplace pension minimum of 3% of qualifying earnings between £6,240 and £50,270, plus role-specific on-costs. For a site role those on-costs include a van and its running costs, fuel, tools, PPE, a phone and scheme cards, and they frequently change whether a hire is affordable. Figures are 2026/27 and move.
What is the National Living Wage in 2026?
£12.71 an hour for workers aged 21 and over from April 2026, with lower rates for younger workers and apprentices. For a contractor it matters less as a direct cost line than as a floor: it lifts the bottom of the rate structure and compresses everything sitting just above it.
Is holiday an extra cost on top of salary?
No, and adding it double counts. Statutory holiday is paid time already inside the salary: the employee is paid for fifty-two weeks and works about forty-six or forty-seven. What holiday genuinely costs is cover, and only where the work must continue while they are away, which is business specific rather than a general percentage.
How does Employment Allowance affect the cost of an employee?
It reduces an eligible employer’s National Insurance bill by up to £10,500 in 2026/27, with the previous £100,000 eligibility cap removed. It is claimed once by the business rather than per employee, so dividing it into a per-head figure understates the marginal cost of the next hire. Price a hire on gross employer NI and treat the allowance separately.
How does the Employment Allowance affect the cost?
It reduces the employer's National Insurance bill for eligible businesses up to an annual limit, so it lowers the cost of the first employees rather than of every employee. Because it applies at business level, it does not reduce the marginal cost of the next hire once the allowance is used up. Pricing every employee as though the allowance applies to them all overstates the saving.
How many productive days does an employee actually work?
Fewer than the contract implies, and the gap is where pricing goes wrong. Start from the working days in a year, then remove holiday, bank holidays, average sickness, training days and time lost to travel or waiting. What remains is the number to divide the annual cost by. Dividing by the full year produces a rate that has never once been achievable.
What should be in an all-in labour rate?
Gross pay, employer's National Insurance, pension contributions, holiday, and the employer's liability insurance attributable to the person. Then the non-productive time: training, travel where paid, sick absence and downtime between jobs. Then the cost of equipping them, from PPE and tools to a vehicle and a phone. A rate built from gross pay alone understates the real figure substantially.
Why does the all-in labour cost matter for pricing?
Because a labour rate built on the wage rather than the all-in cost underprices every job that person works on. It is one of the commonest sources of quiet underpricing, and it is invisible in the accounts because each individual job still appears to run acceptably.
Why does the all-in cost matter if we price by the job?
Because the job price is built from hours, and an hour priced at the wrong rate is wrong on every job you will ever price. The error compounds quietly: each job looks acceptable, the year does not. Getting the all-in rate right once corrects the entire pipeline, which is why it is the single highest-value hour of work in a contracting business.
Is it cheaper to use subcontract labour than to employ?
On the day rate, frequently no, once the subcontractor's own overhead and margin are in their price. On flexibility, usually yes, because you stop paying when the work stops. The comparison that matters is across a year with realistic utilisation, not across one busy week. Firms that employ on the basis of a busy quarter find out the answer in a quiet one.
Next step

Know what the hours cost, on the job.

The real cost per hour is arithmetic you can do once. Getting it onto the job, week by week, is the harder half.

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