The Real Cost of Hiring an Employee
Hiring your first employee — or growing your existing team — can be a really exciting step.
It often means the business is growing.
There's enough work coming in.
And you’ve reached the point where doing everything yourself is no longer sustainable.
But before making that commitment, there’s one really important question to ask:
What is this employee actually going to cost the business?
Because unfortunately, it isn’t just their salary.
Salary Is Only the Starting Point
Let’s say you’re thinking about hiring someone on a £30,000 salary.
It’s very easy to think:
"Okay, that’s £30,000 a year — can the business afford that?"
But the real cost is higher.
Depending on the employee and your circumstances, you may also need to budget for:
Employer’s National Insurance
Employer pension contributions
Payroll costs
Equipment
Software subscriptions
Training
Insurance
Holiday and sickness cover
Other employee benefits
Suddenly, that £30,000 employee is costing considerably more than £30,000.
That doesn’t mean hiring is the wrong decision.
It just means you need to understand the full cost before you make it.
Employer’s National Insurance
Employer National Insurance is one of the biggest additional costs to consider.
For the 2026/27 tax year, employers generally pay National Insurance on qualifying employee earnings, subject to the relevant thresholds and category.
This is where you need to be careful with rough calculations.
The amount isn’t simply:
Salary × NI rate
Thresholds, employment allowance eligibility, employee category and other factors can all affect the actual cost.
So before making a hiring decision, make sure you’re working from a proper payroll calculation rather than a quick estimate.
Workplace Pension Contributions
If your employee is eligible for automatic enrolment, you'll normally also have an employer pension contribution to consider.
Employers are required to provide a workplace pension and automatically enrol eligible employees. The statutory minimum employer contribution under qualifying schemes is generally at least 3% of qualifying earnings, although schemes and contribution structures can vary.
Again, this isn’t necessarily 3% of the employee’s whole salary.
The calculation can depend on:
The pension scheme used
Qualifying earnings
The employee’s salary
Whether the employer offers contributions above the minimum
It needs to be included when you're budgeting for the role.
Then There Are the Costs Nobody Thinks About
This is where the real cost of hiring can start creeping up.
Does your new employee need:
A Laptop or Computer?
That could mean an upfront cost of hundreds — or potentially thousands — of pounds.
Then think about:
Monitors
Keyboard and mouse
Headset
Mobile phone
Office furniture
It all adds up.
Software and Subscriptions
Most employees will need access to at least some software.
For example:
Microsoft 365
CRM systems
Project management software
Industry-specific software
Password managers
Cybersecurity software
Cloud storage
A £10 or £20 subscription doesn't seem huge.
But multiply several subscriptions by several employees, and the monthly cost can grow very quickly.
This is exactly why I’m always banging on about reviewing subscriptions 😂
Don't Forget the Cost of Managing Someone
Not every cost appears on your Profit & Loss report as an obvious employee expense.
There’s also your time.
Recruitment.
Interviews.
Onboarding.
Training.
Regular meetings.
Answering questions.
Reviewing work.
Managing holidays.
Handling HR.
When someone first joins, they may initially take more of your time rather than less.
That’s completely normal.
You’re investing time now so that, ideally, the employee creates additional capacity later.
But that investment needs to be realistic.
What Happens When They're on Holiday or Off Sick?
Your employee is entitled to paid holiday.
There may also be sickness or other statutory leave to manage.
Meanwhile, the work still needs doing.
Depending on your business, you might need:
Overtime from another team member
Temporary cover
Additional staffing capacity
Yourself to step back into the role
Those indirect costs are worth considering too.
Will the Employee Generate Enough Value?
This doesn’t necessarily mean they need to directly generate sales.
An admin employee might free up your time to bring in more business.
A bookkeeper might increase client capacity.
A manager might allow you to step away from day-to-day operations.
The question is:
What does hiring this person allow the business to do that it cannot do now?
Then compare that value with the true cost of the employee.
Run the Numbers Before You Commit
This is the part I’d really encourage business owners not to skip.
Hiring someone is a long-term financial commitment.
Before offering a role, consider:
Salary
Employer’s National Insurance
Pension contributions
Equipment
Software
Training
Payroll and HR costs
Holiday and sickness
Any benefits you plan to offer
Then look at your existing cash flow and profitability.
Can the business comfortably afford the role?
Not just this month.
But during quieter months too?
What happens if sales dip?
How much additional revenue or capacity does that employee need to generate?
These are much better questions to answer before the contract is signed.
Growth Is Exciting — But It Needs to Be Sustainable
Hiring can transform a business.
The right person can free up your time, increase capacity and allow you to grow in ways that simply weren't possible when you were doing everything yourself.
But taking on an employee because you're overwhelmed without understanding the cost can create a completely different type of pressure.
So tread carefully.
Do the calculations.
Build in some breathing room.
And make sure the business can support the decision.
At Eden Bookkeeping Solutions, we regularly help clients understand the financial impact of decisions like recruitment before they commit.
If you're considering taking on an employee and want help working out what that person will really cost your business, let me know.
It's far better to run the numbers now than discover the answer after they've started 💚
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