How Much Does an Employee Cost Your Business?

When it comes to hiring new people it’s easy to assume that it’s only their salary that you’ll pay for, however there are a few other aspects that you’ll need to consider as well. This can include making contributions toward things like National Insurance and workplace pensions.

Within this blog piece we’ll explore all of the added costs that employees bring that you may not have previously thought about.

How much does an employer contribute to National Insurance?

When it comes to National Insurance, employers contribute 13.8% of your employees earnings above £169.01 per week if your employees  are over the age of 21 or are apprentices under the age of 25.

So for example for those on a salary of £18,000 a year an employee's National Insurance contributions are equivalent to £1,271.81 per year.

How much does an employer contribute to workplace pensions?

As of the Pensions Act 2008 workplace pensions have become law, meaning employers must make contributions and enrol eligible employees. Those above the age of 22 must be enrolled into the scheme however they can choose to opt out. For those under the age of 22 they don’t need to be enrolled into a workplace pension however they can request to be added in. 

There may also be costs associated with setting up a pension scheme as well.

In order to ensure you have the correct employees enrolled in your work place pension it’s important to audit and identify all eligible staff members. Your payroll provider should be able to do this for you, which is why here at Payescape our payroll services work hard to help you stay compliant with the latest rules and regulations, such as contributing to workplace pensions.

When it comes to making your contributions, if your employees are paid over £6,240 a year you will be required to contribute a minimum of 3% of earnings above £6,240 a year.

For example if an employee earns £18,000 a year an employer contributes £352.80 per year toward their workplace pension.

How can work benefits impact the cost of an employee on your business?

Many businesses offer company benefits to help them seem more attractive during the recruitment process and help keep staff motivated. Company benefits can include things like:

●       Company cars

●       30 days holiday

●       Money toward gym memberships

●       Free lunches

●       Enhanced maternity/paternity leave

While these are great things to offer your employees, these do add significant costs to the business and when you employ new staff members this cost continues to mount up. It’s important to consider how these costs impact your business, however there are positive costs as they help keep your staff happy and promote productivity.

Adding on to this an enhanced maternity policy is something that companies often offer and is an attractive benefit to prospective employees, but it can also be hugely costly to businesses, which is why some only can afford to offer the statutory maternity pay set out by the government.

How can a lack of productivity impact the cost of an employee on your business?

There are a few ways in which you may be paying for staff members being unproductive. These can include:

●       People not being productive for their entire recorded working hours by doing things like going to the bathroom, making a tea or coffee or socialising

●       Statutory sick pay

●       Maternity/paternity leave

●       Training sessions

While all of these are considered as unproductive tasks, it’s important to offer things like sick pay, maternity and paternity leave and training sessions so that staff members can continue to learn and reduce stress within the workplace and at home. At the end of the day even though you are paying for these things, the majority of them are important for staff members mental health and wellbeing and overall happiness within your business.

In conclusion, employees can cost your business a lot of money and it’s not just their salary that you need to take into consideration. However, these costs are extremely important to an employee's wellbeing and happiness inside and outside of your company and a lot of costs are mandatory anyway.

If you’re looking for help with managing your payroll, get in touch with Payescape today to see how we can help you adapt your payroll process to keep you compliant with the latest rules and regulations.