Question 1

What is the 'true cost' of an employee?

Accepted Answer

The true cost is what an employee actually costs your business per productive hour - not just their hourly pay. On top of gross pay you also fund employer National Insurance, employer pension contributions, and paid holiday. Because holiday is paid but not worked, the cost of the whole year is recovered over fewer working hours, which pushes the real rate above the headline pay rate.

Question 2

How is the true cost per hour calculated?

Accepted Answer

We total the annual cost to the employer (gross salary + employer NIC + employer pension), then divide by the number of weeks actually worked (52 minus holiday) and by the productive hours worked each week. Lowering productive hours or increasing holiday spreads the same annual cost over fewer hours, raising the true rate.

Question 3

What are the 2025/26 employer National Insurance rates?

Accepted Answer

For 2025/26, employers pay Class 1 secondary NIC at 15% on earnings above the £5,000 secondary threshold. These are the defaults used here, and you can change them under 'Advanced assumptions' if your circumstances differ (for example, if you qualify for Employment Allowance).

Question 4

Why is holiday entered in days?

Accepted Answer

The UK statutory minimum is 28 days of paid holiday a year, which equals 5.6 weeks for someone working a 5-day week. We let you enter days because that's how most contracts express it, then convert to weeks (days ÷ 5) for the calculation. Adjust it to match the actual entitlement you offer.

Question 5

Does this include the employee's take-home pay?

Accepted Answer

Yes. Alongside the cost to you as the employer, we show what the employee actually receives after income tax, employee National Insurance, and their pension contribution, using 2025/26 thresholds. This is illustrative and not a substitute for payroll software or professional advice.

True Cost of an Employee Calculator

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