Payroll Cost Calculator UK

What the Calculator Results Mean

The calculator shows several key figures that help you understand the total cost of employing staff.

Gross salary is the employee's basic pay before any deductions. This is the starting point for calculating all other employment costs.

Employer National Insurance is the amount you must pay to HMRC on earnings above the secondary threshold of £5,000 per year. At the time of writing, this is 15% of earnings above the threshold.

Employer pension contributions are the contributions you must make to the employee's workplace pension. The minimum is 3% of qualifying earnings, though some employers contribute more.

Total employment cost is the sum of gross salary, employer NI, employer pension contributions, and any additional costs such as benefits, training, or statutory payments.

The calculator also shows the percentage of the total cost that each component represents, helping you understand where your employment budget is going.

Example Calculation

The following example is illustrative only and assumes a standard employment arrangement with automatic enrolment pension contributions, no additional benefits or expenses, and no Employment Allowance applied.

For an employee with a gross annual salary of £35,000, the calculator shows the total employment cost.

The gross salary is £35,000. Employer National Insurance is calculated on earnings above the secondary threshold of £5,000 at 15%. This is (£35,000 - £5,000) × 15% = £4,500.

Employer pension contributions are calculated on qualifying earnings between £6,240 and £50,270 at 3%. For a £35,000 salary, qualifying earnings are £35,000 - £6,240 = £28,760. The pension contribution is £28,760 × 3% = £862.80.

The total employment cost is the sum of gross salary, employer NI, and employer pension contributions. This is £35,000 + £4,500 + £862.80 = £40,362.80.

The example shows the breakdown of each cost component, the total cost to the employer, and the percentage of the total that each component represents. Your actual costs may vary depending on the employee's salary, pension scheme, and any additional benefits. This example assumes no Employment Allowance is claimed.

What Is Included in Payroll Costs

The total cost of employing someone includes several components beyond the gross salary. Understanding these components helps you budget accurately and avoid surprises.

Gross salary: This is the employee's basic pay before any deductions. It is the starting point for calculating all other employment costs.

Employer National Insurance: Employers pay National Insurance on earnings above the secondary threshold of £5,000 per year. At the time of writing, the employer NI rate is 15% on earnings above this threshold. This is a direct cost of employment.

Employer pension contributions: Under automatic enrolment, employers must contribute at least 3% of qualifying earnings to a workplace pension for eligible automatically enrolled employees. Qualifying earnings are between £6,240 and £50,270 per year. Some employers may calculate contributions using certified pensionable pay rather than qualifying earnings, depending on their pension scheme. Some employers contribute more than the minimum.

Statutory payments: Employers may need to pay Statutory Sick Pay, Statutory Maternity Pay, Statutory Paternity Pay, and other statutory payments. Recovery from HMRC depends on the specific statutory payment and the employer's eligibility under the relevant HMRC rules.

Benefits: Employer-provided benefits such as health insurance, life insurance, company cars, and other perks are additional costs. Some taxable benefits may attract Class 1A National Insurance on the employer.

Training and recruitment: The cost of recruiting, onboarding, and training new employees is part of the overall cost of employment.

Our National Insurance Calculator can help you understand employee NI deductions, and our Employer NI Calculator shows employer contributions in detail.

Employer National Insurance

Employer National Insurance is one of the largest additional costs of employment. Understanding how it is calculated helps you budget for staff costs.

Secondary threshold: Employer NI is paid on earnings above the secondary threshold of £5,000 per year. This threshold applies across all employees, meaning you pay NI on the portion of each employee's earnings above £5,000.

Rate: At the time of writing, the employer NI rate is 15% on earnings above the secondary threshold. This rate applies to all employees regardless of their individual circumstances.

Employment Allowance: Eligible employers can claim the Employment Allowance, which reduces their employer NI bill by up to the current allowance amount. However, eligibility depends on HMRC conditions, and not all employers qualify. For example, certain companies with only one director may not be eligible. The allowance is claimed through payroll software.

Calculation: Employer NI is calculated on earnings above the secondary threshold. For an employee earning £35,000, the employer NI is (£35,000 - £5,000) × 15% = £4,500.

You must pay employer NI to HMRC alongside employee PAYE deductions. This is done through PAYE Real Time Information (RTI) submissions.

Employer Pension Contributions

Under automatic enrolment, employers must contribute to a workplace pension for eligible employees. Understanding the rules helps you comply with your legal obligations.

Qualifying earnings: Pension contributions are commonly calculated on qualifying earnings, which are between £6,240 and £50,270 per year. Only earnings within this range count for pension purposes. Some employers may calculate contributions using certified pensionable pay rather than qualifying earnings, depending on their pension scheme.

Minimum contribution: Employers must contribute at least 3% of qualifying earnings for eligible automatically enrolled employees. Some employers contribute more. The minimum total contribution, including the employee's contribution, is 8% of qualifying earnings.

Calculation: For an employee earning £35,000, qualifying earnings are £35,000 - £6,240 = £28,760. The minimum employer contribution is £28,760 × 3% = £862.80.

Opting out: Employees can opt out of pension contributions, but employers must still offer the pension scheme and make contributions for eligible employees who do not opt out.

For more on pension planning, our Pension Relief Calculator covers pension contributions and tax relief.

Statutory Payments

Employers may be required to make statutory payments to employees in certain circumstances. These payments are additional costs of employment.

Statutory Sick Pay: Employees who are sick for more than four days may be entitled to Statutory Sick Pay. The rate is set by the government and changes annually.

Statutory Maternity Pay: Eligible employees on maternity leave are entitled to Statutory Maternity Pay. Recovery from HMRC depends on the specific payment and the employer's eligibility under the relevant HMRC rules.

Statutory Paternity Pay: Eligible employees on paternity leave are entitled to Statutory Paternity Pay.

Other statutory payments: Statutory Adoption Pay, Shared Parental Pay, and other statutory payments may also apply.

Recovery of statutory payments from HMRC is not guaranteed for all employers in all circumstances. You should check your eligibility under the relevant HMRC rules.

Common Mistakes

Several common mistakes can lead to incorrect payroll cost calculations or compliance issues. Understanding these helps you avoid costly errors.

Underestimating employer NI. Many employers forget to include employer NI when budgeting for staff costs. Employer NI at the current rate is a significant additional cost.

Forgetting pension contributions. Employer pension contributions are a legal requirement. Failing to budget for them can lead to compliance issues.

Ignoring statutory payments. Statutory payments can add to employment costs, even if they may be recoverable from HMRC in some cases.

Not checking Employment Allowance eligibility. Eligible employers can reduce their employer NI bill. However, not all employers qualify, and you should check your eligibility under current HMRC rules.

Using incorrect thresholds. The secondary threshold for employer NI and the qualifying earnings band for pensions change periodically. Always use the current rates and thresholds.