You've decided to hire your first employee. You've agreed on £30,000 per year. How much will this really cost your business?
The £30,000 Salary Breakdown
What the employee sees:
- Gross salary: £30,000
- Employee NI and tax: ~£4,500
- Take-home: ~£25,500/year (£2,125/month)
What you pay (employer):
Much more than £30,000.
Your Actual Costs
1. Gross Salary: £30,000
This is what you agreed. It's paid monthly: £2,500/month.
2. Employer's National Insurance: £2,884
Calculation:
NI is 13.8% on earnings above £9,100/year (2024/25)
(£30,000 - £9,100) × 13.8% = £2,884/year
That's £240/month on top of salary.
3. Pension Contributions: £900
Minimum: 3% employer contribution (auto-enrolment)
£30,000 × 3% = £900/year (£75/month)
Many employers offer 5%: £1,500/year.
4. Equipment & Setup
One-time:
- Laptop: £900
- Monitor, keyboard, mouse: £200
- Chair and desk (if office): £300
- Total: £1,400
Annual recurring:
- Software (Slack, Google Workspace, tools): £500
- Phone/mobile plan: £360
- Annual: £860
First-year average: £2,260 (£1,400 + £860)
Ongoing years: £860
5. Workspace
Office: £300-£500/month per desk = £3,600-£6,000/year
Remote: £600/year (£50/month home office allowance)
We'll use remote: £600
6. Recruitment Costs
How you found them:
- Job board ads: £400
- Agency fee: £0 (did it yourself)
- Your time interviewing (20 hours @ £40/hr): £800
- Total: £1,200
Amortized over 2 years: £600/year
7. Training & Onboarding
First 3 months:
- Your time training (40 hours @ £40/hr): £1,600
- Training courses: £400
- Reduced productivity (they're learning): ~£2,000 loss
Amortized over first 2 years: £2,000/year
8. HR Administration
- Payroll software: £10/employee/month = £120/year
- HR advice/legal: £400/year
- Employers' liability insurance: £150/year
- Total: £670/year
Total First-Year Cost
| Item | Cost | |------|------| | Gross salary | £30,000 | | Employer NI | £2,884 | | Pension (3%) | £900 | | Equipment | £2,260 | | Workspace (remote) | £600 | | Recruitment | £600 | | Training | £2,000 | | HR/admin | £670 | | Total Year 1 | £39,914 |
That's 33% more than the salary.
Ongoing Annual Cost (Year 2+)
| Item | Cost | |------|------| | Gross salary | £30,000 | | Employer NI | £2,884 | | Pension | £900 | | Software/phone | £860 | | Workspace | £600 | | Training | £500 | | HR/admin | £670 | | Total Year 2+ | £36,414 |
That's still 21% over the salary.
Monthly Cash Flow Impact
First year: £39,914 ÷ 12 = £3,326/month
Ongoing: £36,414 ÷ 12 = £3,035/month
Can your business afford £3,000-£3,300/month consistently?
Break-Even Analysis
How much revenue must this employee generate?
If you want 25% profit margin:
£36,414 ÷ 0.75 = £48,552/year revenue
That's £4,046/month they need to bring in just to justify their cost.
Billable Hours Reality
If this is a billable employee (consultant, designer, developer):
Total working days:
- 365 days
- -104 (weekends)
- -28 (holidays)
- -8 (bank holidays)
- -6 (sick days avg)
- = 219 working days
Billable rate needed (80% billable = 175 days):
£48,552 ÷ 175 days = £277/day (to break even with 25% margin)
Or £35/hour (8-hour days)
If you're charging clients £50/hour:
175 days × £50/hour × 8 hours = £70,000 revenue
Cost: £36,414
Profit: £33,586
Profit margin: 48% (healthy)
What If You Can't Bill Them Out?
If they're non-billable (admin, marketing, operations):
They need to enable £48,552+ in revenue through efficiency, sales, or support.
Example: Marketing hire brings in 3 new clients worth £20k each = £60k revenue. Worth it.
The Alternative: Freelancer
Freelancer at £250/day:
- 50 days/year: £12,500
- 100 days/year: £25,000
- 150 days/year: £37,500
Employee costs £36,414/year (Year 2+)
Break-even: ~146 days
If you need less than 146 days/year of work, freelancer is cheaper.
The Hidden Costs of Getting It Wrong
If you hire wrong:
- Notice period: 1-3 months pay (£2,500-£7,500)
- Redundancy pay: If over 2 years, statutory redundancy applies
- Recruitment again: Another £1,200
- Lost productivity: 3-6 months
Cost of a bad hire: £15,000-£30,000
The Lesson
A £30k salary costs £36k-£40k depending on benefits and setup.
Before hiring:
- Can you afford £3,000-£3,300/month consistently?
- Do you have 150+ days/year of work?
- Will they generate 1.5× their cost in value?
- Have you tried freelancers first?
Use our Payroll Cost Calculator to model different salary levels.
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