The true cost of a hire: what payroll really adds to a salary in 2026/27


 

When an owner-manager agrees a £35,000 salary with a new hire, the number in their head is £35,000. The number in the budget should be considerably higher. Employer National Insurance, pension auto-enrolment, and the administrative machinery of running payroll all sit on top of the salary figure, and after the recent employer NIC changes the gap is wider than many businesses have recalculated.

Building the loaded cost, line by line

Start with the salary, then add employer NICs at the current rate on earnings above the secondary threshold. Then add the employer's minimum auto-enrolment pension contribution. Then the items people forget: payroll software licences, the time cost of RTI submissions and corrections, year-end P60 and P11D administration, and the cost of getting it wrong, which can mean HMRC penalties and interest on late or inaccurate filings.

There is also the cover problem. In a small business, payroll knowledge often lives in one person's head. When that person is on holiday or off sick, payroll still has to run, on time, every time. The contingency for that is either cross-training (more cost) or outsourcing (a fixed, predictable cost).

Why the NIC rise changed the outsourcing maths

A higher employer NIC rate does not just raise the cost of employment, it raises the marginal cost of every pay decision: overtime, bonuses, salary reviews, and new hires all carry the higher rate. That makes the loaded-cost comparison the most useful exercise a business can do this year: the full cost of running payroll in-house, including software, staff time, and error risk, versus a fixed-fee outsourced payroll function where compliance, RTI, and year-end filings are someone else's problem.

For many businesses under 50 employees, the comparison surprises them, because the in-house figure they were using was just the salary plus a rough NIC estimate, while the true figure includes all the administration around it. Outsourced teams like Finex Outsourcing handle payroll alongside the wider finance function, which you can read about in their financial outsourcing services.

A practical checklist before your next hire

Run these five numbers before signing the offer letter: salary plus employer NICs at current rates; employer pension contributions; payroll software and admin time; the cost of cover for absence; and a contingency for corrections and penalties. If the total changes your mind about the hire, the exercise has paid for itself. If it confirms the hire, you have budgeted honestly. Either way, you are deciding on the real number, not the offer-letter number.

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