Share Article: I want to take on my first employee. What will it cost?

This will obviously depend on the role and market rate for the skills you need. You’ll need to make sure to pay the National Minimum Wage, currently £8.21 an hour for workers 25 and over. However, there are some other costs you will need to take into account:

Payroll: Income tax and Employee’s National Insurance need to be deducted at source. Whilst you can do this yourself, it’s easier to outsource it to a payroll company. They can also deal with deducting pension contributions (see below).

Employer’s National Insurance: This is currently 13.8% on payments above £166 per week.

Insurance: You will need to get employer’s liability insurance. Your insurance broker should be able to arrange this.

Pensions Auto Enrolment: Contributions will need to be made to a pension scheme unless employees opt out. Your payroll company should be able to sort this for you and may be able to put you in touch with a financial advisor to set up a scheme. You can use a 3 month “postponement period” to give the employee time to notify you if they want to opt out. If an employee opts out, they can they opt in later and you will need to re-visit the process every 3 years by re-enrolling and giving the chance to opt out again. There will be a cost to setting up a Pensions scheme and the relevant employer contributions (3%).

Holiday: Strictly not an additional cost but you will have to grant employees 5.6 weeks paid holiday each year (inclusive of Bank Holidays).

Sick pay: You don’t need to pay full pay during sickness but will need to pay SSP (currently £94.25 per week) if employees are absent for 4 days or more. This must now be met by the employer as it’s no longer possible to recover it.

Maternity/Paternity Leave: Employees are entitled to Statutory Maternity, Paternity or Shared Parental Pay but you can recover this so it is not strictly a cost. Pregnant employees are entitled to paid leave for ante natal appointments.

Notice pay: Anyone leaving is entitled to statutory notice of a week per each year of service (maximum 12 weeks). They can be asked to work this notice.

Redundancy costs: If employees have to be made redundant, they are entitled to redundancy pay if they have been with you more than 2 years. This amounts to a week’s pay per completed year of employment subject to a statutory maximum (currently £525). Employees under 21 only receive half a week’s pay for each year and those over 41 receive 1.5 weeks.

If you have any questions about employees, contact Louise Taft on 020 7935 3522 or

Whatever your personal circumstances the above is only a guide and we would advise you to contact us to obtain definitive advice as you will appreciate that each person’s circumstances are unique to them.

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