How much does an employee really cost UK employers in 2026?

Hiring personnel is exciting. It means one thing — your business is growing. But, when hiring, it’s easy to fixate on the cost of the wage, and the wage only. 

In reality, the true cost of a UK employee can involve a few different line items. There’s the cost of paying National Insurance, and don’t forget recruitment agency fees in the first place. All of this can shore up your outlay per hire.

In this guide, we explore the true cost that comes with taking on and retaining employees. So when looking to expand your team, don’t forget to factor in all the below, so you’re crystal clear on how much it’s going to cost.

Why do you need to understand employee costs? 

The long and short of it is — you don’t want to get into financial difficulties just because you failed to understand the true cost of bringing on team members. So, read on to learn more!

In the UK, the average cost per hire (based on a salary of £27,600) can run up to a whopping £62,890! And that’s just in the first year with the company! 

To accurately forecast business growth and map out a budget, you need to understand all things financial. The required capital for your employees plays a huge part in that.

Since UK compensation involves more than salary, reliable checks and balances are crucial to accurately track all financial data, including benefits outside of salaries, healthcare schemes, gym memberships, etc.

Then, when you understand how much you need to shell out for a hire, you’ll be more informed, and can start looking for more cost-effective strategies for growing the team. For example, not using a recruitment agency, or improving your employee experience in order to retain staff.

What are the different costs involved in hiring an employee? 

So what does the true cost of employing someone come down to? Here, we discuss the top six expenditures (and some bonus ones) you’ll want to consider when expanding your team. 

1. Recruitment

Sometimes, you’re best outsourcing to a talent agency to find the most suitable candidates. But accessing their sublime network of candidates isn’t cheap. The British Business Bank estimates that agency fees fall somewhere between 20% and 30% of the new recruit’s salary. So, if you’re looking for a marketing manager and thinking of paying up to £45,000, that’s between £9,000-£13,500.

A good talent scout is a pro at finding talent. So, if you’ve already dabbled with the online job ad route, it might be the moment to cut your losses and save your sanity by outsourcing. But don’t forget to count this outlay, so you can make sure you can afford it.

2. Pension contributions

All UK employers must offer a workplace pension scheme, which means you’ll have to consider these calculations when working out the total cost of any worker. As an employer, you must contribute at least 3% of your employee’s qualifying earnings.

You can also decide to contribute more than 3%, but this is entirely your call. Remember, retirement plan payments can be counted as business expenses, so you get tax relief on them.

3. Perks and benefits 

Aside from legal requirements (paid sick days, maternity, etc.), you can offer a range of perks to help attract (and retain) the best employees. By giving them access to better benefits, you’re showing them you value them. But, of course, this will also raise their overall cost.

Perks could include contributing more to their retirement pot, discounted gym memberships, extra holiday allowance, and health and well-being subscriptions such as Medicash, or other private healthcare schemes. Some employers sign up for subscription services such as the ones offered by Perkbox. No matter what additional compensation package you decide to provide, you’ll have to factor this into the true expenditure for your employees.

4. National Insurance Contributions 

Another legal obligation in the UK are National Insurance Contributions (NICs). What is the rate? Well, at the moment, you must pay 15% of your employee’s qualifying earnings for all of your full-time workers.

So, don’t forget to factor that into your expenditure, because if you miscalculate NICs, you can face fines and penalties from HMRC. An online calculator or professional payroll software, such as PayFit’s, can help you figure out the exact amount, and keep track of these expenses.

5. Sick leave

Sick leave is costly. And we’re not just talking about Statutory Sick Pay (SSP). It can disrupt your internal teams, causing them to become overworked, or forcing you to take on outside help to fill staffing gaps.

When team members become overworked, they might take more days off due to stress or anxiety, and you can find yourself in a catch-22 situation. 

When it comes to SSP, you will have to disburse £118.75 per week for a total of 28 weeks. Of course, you can offer more than the minimum, but you must at least provide this.

Access to accurate payroll data allows you to analyse the allocation of resources and pinpoint teams with higher sick rates than others. This can prompt you to dig a little deeper and understand why that’s the case. Is the department overworked? Do they need better resources? You now have the answer to these questions with this data.

6. Training and onboarding

Taking on a hire isn’t an instant process. When you send them your official job offer letter, the journey is only just beginning. You need to wait until they see out their notice period, join your organisation, onboard, get used to your processes, and start delivering work to the standard your company expects.

This whole process takes a while, meaning it burns through money. You might have to dole out for training courses (direct costs) to get them up to speed, but you’ll also have to let them settle in, which might hamper overall team productivity (indirect costs). You’ll need to enter estimates of these expenditures into your budget calculations.

What are the hidden costs to consider in 2026?

Beyond the obvious salary and mandatory contributions, employers should also budget for: 

• Job perk packages (increasingly expected in competitive job markets)

• Remote work setup costs (equipment, software licenses, connectivity)

• Updated health and safety compliance measures

• Enhanced training and development programmes

• Rising utility and workspace costs per work station

Tips to keep wasted hours down to a minimum

Productivity and wasted time are both aspects that are hard to determine for employees. Instead, all you can do is combat them with smart solutions to make your processes more efficient and free up time elsewhere.

Automate simple finance tasks

Try to automate all the stuff that takes ages, in order to make employees’ lives (and the finance team’s) easier, including tasks like generating and distributing payslips, working out tax calculations, and automating Real Time Information (RTI) and pension submissions.

No more second-guessing calculations, and no more inaccurate or duplicate data — instead, everyone should be able to access the same data from a centralised location. This cuts any time wasted using manual calculations and data entry.

Avoid unnecessary meetings

According to Zippia 2023 report, around 15% of work schedules are spent in meetings, despite around 71% of these meetings being unproductive. Meetings, particularly meetings without a clear objective, waste precious time. 

Educate staff on tasks that require meeting inputs and those that require an email briefing instead. Consider keeping meetings interdepartmental, to make them more focused and productive.

We all know time is money. So, if you are on the finance team, it’s your job to make sure costs are streamlined to achieve financial goals, in everything from a business mortgage right down to management efficiency.

Consider a remote working policy 

Remote work ultimately saves everyone money. The organisation can cut electricity bills and other office expenditures, and employees save time, money and energy when it comes to commuting. No more are hours wasted away sitting in traffic.

Remote work means remote meetings, where there’s often less chit-chat and more purpose.

A remote working policy can also help you tap into international talent. There are no borders to your recruitment, because you’re no longer governed by your location.

If you’re looking for payroll software that can help you cut costs and save time, PayFit is a pretty good choice.