If you are a business owner looking to hire new employees in the United Kingdom, you must know the costs involved. This article will provide an in-depth analysis of all the required and optional costs of hiring an employee in the UK. So, whether you are an established business or a startup, read more about the costs of hiring employees in the UK.

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Required costs of hiring in the UK

Recruiting the right people can be time-consuming and expensive. The cost of hiring an employee in the United Kingdom varies depending on the position and company. Most companies can expect to pay about £62,890 to hire a new employee, not including salary and benefits (based on the UK average salary). It's critical to take the time during the hiring process to ensure your new employee is the right fit for the position and company. Finding the right employees can avoid costly turnover and ensure that your company gets the most out of its new hires.

Minimum wage & average salary for a new employee

Employers must adhere to legal requirements while hiring in the UK, including paying employees a minimum wage based on age and experience. As of April 2023, the national minimum wages were updated to the following hourly rates:

  • 23 and over: £10.42
  • 21 to 22: £10.18
  • 18 to 20: £7.49
  • Under 18: £5.28
  • Apprentice: £5.28

Based on the Office for National Statistics (ONS), the median salary for full-time employees in 2023 was £31,772. The following industries had the highest median annual earnings for full-time employees, as reported by the ONS:

  • Financial and insurance activities: £43,821
  • Electricity, gas, steam, and air conditioning supply: £42,450
  • Mining and quarrying: £42,386
  • Information and communication: £42,267
  • Professional, scientific, and technical activities: £37,484
Overtime Pay

There is no legal requirement for employers to pay overtime, but they must ensure that the average pay for total hours worked does not fall below the National Minimum Wage. Usually, details of any overtime rates and how they are calculated are included in the employment contract. Employees are not required to work overtime unless their contract states so. Although an agreement can be made to work more than 48 hours per week, both parties must document and sign it. Employers can only allow it if there is a guarantee for overtime in the contract. However, the usual rate for overtime is time-and-a-half of the regular hourly rate to encourage employees to work extra hours, particularly on holidays.

Paid time off and other leaves

Employees are entitled to…

  • Statutory Paid Time Off: 28 days of paid leave (including bank holidays)
  • Sick Leave:  28 weeks of statutory sick leave, paid by the employer. Employees must provide proof of sickness after 7 days of paid sick leave.
  • Maternity Leave: Women are entitled to 2 weeks (1 year) of maternity leave which consists of 26 weeks each for ordinary and additional maternity leave regardless of length of employment. During maternity leave, employers must pay Statutory Maternity Pay (SMP), which is the lowest legal amount. SMP lasts for a maximum of 39 weeks and includes 90% of your average weekly earnings (pre-tax) for the first six weeks and £172.48 or 90% of your average weekly earnings (whichever is less) for the following 33 weeks.
  • Paternity Leave: Employers must pay for statutory paternity leave. The amount paid is the statutory weekly rate of Paternity Pay, which is either £172.48 or 90% of their average weekly earnings.
  • Shared Parental Leave: New parents can also opt for 52 weeks of Shared Parental Leave. They will be eligible to receive Statutory Shared Parental Pay (ShPP), which amounts to £172.48 per week or 90% of your average weekly earnings for up to 37 weeks shared among the two.
  • Adoption Leave: Adoptive parents are entitled to 52 weeks of leave, divided into 26 weeks of Ordinary Adoption Leave and 26 weeks of Additional Adoption Leave. Only one person in a couple can take the leave, while the other could opt for paternity leave. You can attend five adoption appointments and get paid time off work. Statutory Adoption Pay is given for up to 39 weeks with a weekly amount of £172.48 or 90% of your average weekly earnings for the next 33 weeks after the first six weeks at 90% of your average weekly earnings.
Social contributions and taxes

Employers must pay National Insurance Contributions (NIC) for their employees and income tax deductions from employees' salaries. The employee's earnings, which band they fall into, and their National Insurance contributions determine the specific amounts taken and paid. This can range from 0-13% according to weekly pay. Employers must contribute at least 3% to each employee's pension fund. Altogether, employers must pay 14.53% (April 2023) of your employee’s qualifying earnings in social contributions.

Severance Pay

Although not obligatory in the UK, providing a severance payment can give companies a competitive edge. Workers who have served their current employer for at least 2 years are generally eligible for statutory severance pay, which includes:

  • Half a week's salary for each full year of employment under 22.
  • A week's salary for each full year of employment (capped at 20 years) between the ages of 22 and 41
  • A week and a half salary for each full year of employment (capped at 20 years) at 41 or older.

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Optional costs of hiring in the UK

Companies hiring in the UK need to consider several optional employee-related costs. Calculating these extra charges while hiring new staff is important.

Private Pension Schemes & Health Insurance

Employers need to consider additional costs beyond an employee's salary to attract and retain the right people when hiring in the UK. These may include employee benefits that could cover private healthcare or workplace pensions.

Bonuses and Allowances

Many UK companies offer bonuses and allowances to incentivize their employees. These can come in performance-based bonuses, stock options, or allowances for gym memberships (£31.61/month) or transportation or mobile phone bills (£25.62/month). These can go a long way toward increasing employee satisfaction and loyalty.

Training and Development

Investing in employee training is crucial to ensure an organization's growth and success. Offering in-house training programs or external courses and mentoring or coaching programs for new hires can benefit employee development and career progression. 

Organizations can expect increased productivity and job satisfaction among their workforce by providing opportunities (such as an Udemy subscription which costs USD360/year or £289.35 for a team of 5-20 employees) for employee development and improving their skills.

Workplace Budget

Employers may also need to provide equipment like computers or coworking fees for onboarding. Employers could also provide a home office budget (~£500-1,715).

Estimated Total Costs for Employers Hiring in the UK

Organizations need to factor in various expenses such as national insurance contributions, pension contributions, recruitment costs, and benefits to calculate the true cost of hiring a new employee in the UK. Workplace budgeting planning is essential to make sure there are no hidden expenses. Other factors like sick pay, different types of leave and overtime payments must be considered too. Hiring can be time-consuming and expensive for small business owners. The British Business Bank estimates that cost to hire an employee in the UK falls between 20% and 30% of the employee’s salary. That is, on an average salary of £31,772, £38,126 - £41,303. 

Hire in the UK with Borderless

Companies can reduce their hiring costs by using an EOR and a platform like Borderless while still finding the right people. As a result, they can attract top talent and skip costly hiring expenses. Our team handles everything from payroll to compliance, allowing you to focus on growing your business. Learn more today!

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Disclaimer

Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.