What is the Cost of Hiring Someone in the UK?
The cost of hiring someone in the UK is significant. From salary and National Insurance contributions to recruiter fees and training costs, there are many factors to consider. Read on below to find out more.
As your company expands, and positions open up, securing the right person for the job is crucial to getting the most out of your business. But hiring not only takes time, it takes money.
While your main focus might be on salary, you will need to consider far more than basic pay when it comes to budgeting for a new hire. In fact, you could be looking at double the annual salary you offer once everything is totted up.
Below we take a look at the true cost of hiring someone in the UK, from National Insurance and pension contributions, to how much to spend per head on a work event.
Cost of hiring someone in the UK over one year
If you wanted to hire a full-time office worker in the UK, this is how much it could end up costing you over one year.
Figures based on hiring a full-time employee at the median weekly salary in April 2021, as detailed by the Office for National Statistics, and the National Insurance and pension contribution rates for 2022/23.
At the time of writing, the British Business Bank estimates the cost of hiring someone in the UK to be £62,890.
What is the average salary in the UK?
We should start with the big one: salary. What will you end up paying your new employee?
Of course, there are so many variables when it comes to remuneration. What industry are you in? What level of experience are you looking for? How much can you realistically afford?
Nevertheless, it is still good to have a benchmark understanding of what prospective employees might be expecting.
According to the most recent data from the Office for National Statistics (ONS), published in November 2021, the median weekly pay for full-time employees in the UK in April 2021 was £611. This equates to a salary of £31,722 a year.
The median figure – that is, the exact midpoint when all the salaries collected are ordered from lowest to highest – is sometimes preferable to a straight average, or mean. This is because the mean average can be disproportionately affected by the small group of people that earn a lot of money.
While the median salary in the UK is good guidance, it isn’t a legal requirement. However, you will need to make sure you are abiding by the National Living Wage and National Minimum Wage rules when hiring staff.
The National Living Wage is for people aged 23 and over, while the National Minimum Wage is for anyone between school leaving age and 22 years old. The table below shows the hourly wage for each age group.
Source: Gov.uk (as of 25 August 2022)
» MORE: What is an employee?
How much will I pay in National Insurance?
The cost of hiring someone in the UK doesn't end at their basic salary. On top of their pay, you will also need to make National Insurance contributions (NICs). This is separate to what the employee themselves will pay.
Employers pay class 1 National Insurance contributions on all employee earnings above the secondary threshold (the point when employers start paying NICs), which for 2022/23 is £175 a week. The rate of National Insurance for employers is 15.05%.
This means, for example, if you were to pay a 30-year-old employee the median salary of £31,722 using the most common Class 1A NIC category, you as an employer would pay roughly £3,412.14 in National Insurance over a year for that one employee.
If you were to employ anyone under the age of 21, or an apprentice under the age of 25, however, the secondary threshold is £967 a week.
You will also need to pay National Insurance on any cash bonuses you give your employees.
» MORE: What is National Insurance?
How much will it cost me in pension contributions?
As well as National insurance, you may also need to make pension contributions on behalf of your employee.
If you automatically enrol an employee into a workplace pension scheme, then you must contribute a minimum of 3% of their qualifying earnings. If they voluntarily enrol into a workplace pension scheme, then you must contribute the 3% minimum if your employee earns more than £120 a week, £480 over four weeks, or £520 a month.
Qualifying earnings include your employee’s wages or salary, as well as any commission, bonus or overtime you pay them, but before income tax and National Insurance contributions are deducted. For 2022/23, qualifying earnings fall between £6,240 and £50,270.
So, if you automatically enrol your employee into a workplace pension scheme at the minimum requirement of 3%, and they earn the UK’s median salary of £31,722, you will pay £764.52 a year in pension contributions for that one employee.
How much does it cost to recruit an employee?
An employee won’t just appear overnight. Most of the time, you will need to recruit them. And this doesn’t just involve learning how to interview someone, or the best questions to ask in an interview.
No, you will need to actively search for applicants. And this isn’t always free.
Although there are some sites where you can post a job advert for nothing, to cast the net wide enough, you may end up needing to pay to display. And according to Glassdoor, the online employer reviews hub, this could cost anywhere between £70 and £240.
Even then, most small businesses won’t have the luxury of an in-house recruitment team to create and post the ads, let alone follow up with each candidate. That’s where recruitment agencies come in, often charging between 10% and 30% of the employee’s starting salary.
Let’s say the recruiter charged the midpoint of 20%. If you employ someone at the median salary of £31,722, and use a recruiter to find them, this would cost you £6,544.40.
What does it cost to train a new employee?
The amount it will cost to get your new employee up to speed can vary greatly, depending on your organisation and the position you are hiring for.
Research by the Department forEducation, published in November 2020, showed that, on average, businesses spent around £1,530 on training costs per employee in 2019.
That may sound like a lot of money, but it is worth seeing your employees as an investment. The more you put into them, the more they can bring to your business.
How much business insurance will I need to take out?
The moment you hire an employee based in the UK who isn’t a family member, you are legally required to take out employers’ liability insurance worth £5 million from an authorised insurer. And if you are incorporated as a limited company, you are required to take out an employers’ liability policy even if you only employ family.
But don’t worry – you won’t be paying £5 million for your insurance. That’s just your level of cover. How much a policy will actually cost you depends on, among other things, how many employees you have, and the risks associated with your individual business.
This means there can be vast differences between the cost of the average employers’ liability insurance policy. Where one business might be looking at £10 a month, another might be paying well into the hundreds.
NerdWallet’s partner for employers’ liability insurance, Simply Business, states that prices can start from £5.56 per month, although most customers pay more than that. At that lower level, you would pay £66.72 a year for employers’ liability insurance. Again, however, it is important to stress that in reality the cost of your policy may be much higher.
You may also want to bundle employers’ liability with other types of business insurance, such as public liability insurance or professional indemnity insurance, in order to financially protect your organisation from a number of scenarios.
» COMPARE: Business insurance
What are the costs of running a workplace?
While there has been an undoubted rise in remote or hybrid working since the Covid-19 pandemic, many businesses still need a dedicated workplace.
But what is the cost per employee? As with everything, it will depend on the exact type of business you run. An office building has different needs to a restaurant, for example.
According to dedicated commercial property search engine Realla, the average monthly rent for office space in the UK is around £26 per square foot. And with a common rule of thumb recommending 50 square foot per desk, you could be looking at £15,600 a year in rent to accommodate one employee in an office – though this could be even more depending on the size of your office’s communal space.
Meanwhile data firm Thermatic Energy estimates that the average annual energy bill for a five-person office in 2020 was £3,103. However, with the UK energy crisis in full swing, analysts at Cornwall Insight are expecting business energy bills to increase five-fold when new contracts are negotiated in October 2022.
» COMPARE: Business energy
What will it cost to keep my employees happy?
On the one hand, you could argue that you can’t put a price on keeping your employees happy. On the other, there’s no way to get around it: work perks cost money.
The value of creating a strong workplace culture can be invaluable. And one way to do that is through social functions and parties. It might be wise not to spend more than £150 per employee, however; if you do, you will have to pay National Insurance on the social event.
You should also think carefully about what your employees actually want. Our NerdWallet survey of 2,000 employed UK adults showed that workers are more interested in flexible hours and commuting time over team social events and office refreshments.
Other hiring costs to consider
On top of all the various costs and expenses mentioned above, there are a bunch of other factors that may come up for consideration once you’ve found your new employee. These include:
- new equipment
- software licences
- sick or holiday cover
- maternity or paternity pay
- company benefits
- business travel
- company vehicle
Given the number of financial elements you will need to juggle as an employer, it is strongly recommended that you consider opening a dedicated business bank account if you do not have one already.
» COMPARE: Business bank accounts
Image source: Getty Images
Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The Independent. Read more