Compare the true cost of hiring an employee versus engaging a contractor. Includes employer National Insurance, pension contributions, holiday pay and other on-costs.
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The sticker price of an employee — their salary — is never the full cost. When you add employer National Insurance, pension contributions, holiday pay and other on-costs, the true cost of an employee is typically 25-35% above their salary.
Employers pay National Insurance at 13.8% on earnings above the Secondary Threshold of £9,100 per year. For an employee on a £35,000 salary, employer NI adds approximately £3,572 to the annual cost.
Most employees must be auto-enrolled into a workplace pension. The minimum employer contribution is 3% of qualifying earnings. Many employers contribute more — the average employer contribution is around 4-5%.
Employees are entitled to 5.6 weeks paid holiday (28 days for full-time workers). This means you are paying for approximately 10.8% of the year when no work is being done. For a £35,000 employee this costs around £3,780 per year in unproductive salary.
Despite the higher day rate, a contractor can be cheaper than an employee for short-term projects, specialist skills needed occasionally, or roles where you only need someone for part of the year. The break-even point is typically around 200-220 days per year.
If your contractor engagement falls inside IR35, the cost comparison changes significantly. Use our IR35 Status Checker to assess the risk before engaging a contractor.