You need to hire someone. The candidate is excellent — experienced, enthusiastic, and ready to start. They want £65,000. Your business partner looks at the company accounts, sucks air through their teeth, and says: "We can't afford it."
But here is the question: can you afford it, or can you not? Because unless you have actually worked out what £65,000 costs the business, you are making a decision based on a feeling, not a fact.
The truth is, a £65,000 salary does not cost your business £65,000. It costs substantially more. And understanding exactly how much more — and where that extra money goes — is essential for any business owner who is hiring.
The Real Number: What £65,000 Actually Costs
Let us run the numbers for a £65,000 employee in the 2025/26 tax year. Pop that salary into our employer cost calculator and here is what comes back:
- Gross salary: £65,000
- Employer National Insurance (15% above £96/week threshold): approximately £8,978
- Auto-enrolment pension (3% employer minimum): £1,950
- Total cost to company: approximately £75,928
That is nearly eleven thousand pounds on top of the salary the employee sees. And we have not even counted the indirect costs yet.
Employer National Insurance: The Hidden Employment Tax
Employer NI is, in effect, a tax on hiring people. From April 2025, employers pay 15% National Insurance on earnings above £96 per week (£4,992 per year). That threshold used to be £175 per week, so the change has significantly increased the cost of every employee.
For a £65,000 employee, the employer NI comes to roughly £8,978. That is money the employee never sees — it goes straight from your business to HMRC. But it absolutely affects your ability to hire, give raises, or invest in other areas of the business.
This is why wage growth sometimes feels sluggish even when businesses are doing well. Every pound of salary increase does not just cost a pound — it costs £1.15 once you add the employer NI on top.
Auto-Enrolment Pension: The Minimum Is Just the Start
By law, every employer must enrol eligible workers into a workplace pension scheme. The minimum contribution is 3% from the employer and 5% from the employee (8% total).
On a £65,000 salary, the minimum employer contribution is £1,950. Some employers offer more — 5%, 8%, even matched contributions — and while that is great for recruitment, it adds to the cost. A 5% employer pension on £65,000 is £3,250 — an extra £1,300 compared to the minimum.
Use our pension calculator to model how different employer contribution rates affect the total cost of employment.
The Costs You Might Be Forgetting
The employer cost calculator gives you the statutory costs — NI and pension. But the true cost of an employee includes several other items that many small business owners overlook:
- Holiday pay — 28 days minimum (including bank holidays). That is 5.6 weeks of paid time off where you are paying salary but receiving no output
- Sick pay — Statutory Sick Pay is currently £116.75 per week, but many employers offer enhanced sick pay. Our statutory sick pay calculator shows the minimum you would owe
- Maternity/paternity pay — if applicable, statutory maternity pay runs for up to 39 weeks. Our maternity pay calculator can estimate the cost
- Equipment — laptop, monitor, desk, software licences, phone
- Office space — the desk they sit at costs money, whether it is in your office or a co-working space
- Training — onboarding, professional development, courses
- Insurance — employers liability insurance is a legal requirement
- Recruitment costs — agency fees (typically 15-20% of salary), job adverts, interview time
When you add all of these up, the total cost of a £65,000 employee is often in the range of £85,000 to £95,000 depending on your industry, location, and benefits package.
What About Hiring a Contractor Instead?
This is the question that inevitably comes up. If an employee costs £75,000-£95,000 all in, would it be cheaper to hire the same person as a contractor?
Let us look at the maths. A senior developer working as a contractor might charge £400 per day. Over 230 working days in a year (52 weeks minus holidays and a buffer), that is £92,000.
At first glance, that looks more expensive. But consider what you are not paying:
- No employer NI (saving £8,978)
- No pension contributions (saving £1,950)
- No holiday pay, sick pay, or maternity/paternity pay
- No recruitment agency fees
- No training obligations
- No equipment costs (contractors usually bring their own)
Our day rate calculator can help you compare what a contractor at various day rates costs versus a permanent employee. And if you are not sure about the IR35 implications — whether HMRC considers the contractor to effectively be an employee — our contractor IR35 calculator can help you understand the risk.
The trade-off is flexibility versus commitment. A contractor can start immediately and leave when the project ends. An employee is a long-term investment but provides continuity, institutional knowledge, and team cohesion.
Running Payroll: What You Need to Know
Once you do make the hire, you need to run payroll correctly. That means deducting the right amount of income tax and employee NI through PAYE, making pension contributions, and reporting everything to HMRC in real time through Real Time Information (RTI).
Our payroll calculator can help you verify that your payroll figures are correct. It is useful as a sanity check even if you use payroll software — mistakes happen, and catching them early saves headaches with HMRC later.
How to Have the Conversation With Your Business Partner
Here is the practical bit. You need to make a hiring decision, and you need your business partner on board. Instead of arguing about whether you can "afford" £65,000, present the numbers:
- Screenshot the employer cost calculator results showing the total cost at £65,000
- Run a comparison at £60,000 and £58,000 — show how much the business saves at each level
- Compare the cost of a contractor at £350/day or £400/day using the day rate calculator
- Factor in the revenue or savings this hire will generate — what is the cost of not hiring?
A hiring decision should never be based on the headline salary alone. It should be based on the total cost of employment versus the value the person will bring to the business. And the only way to have that conversation properly is to know the actual numbers.
The Bottom Line
A £65,000 employee costs your business roughly £76,000 in statutory costs alone, and potentially £85,000-£95,000 when you include everything else. That is a significant investment — but it is a knowable one.
Run the numbers before you make the decision. Use our employer cost calculator to see the hard figures. Compare against a contractor using the day rate calculator. And make your hiring decision based on facts, not fear.
Because "we can't afford it" might be true — but until you have actually done the maths, you do not know.