How much does it cost to hire an employee?

September 16, 2019

One of the most significant milestones that a business will run into is hiring its first employee. The growth that your business undergoes to get to this point just shows how successful you have been in getting your startup moving, so congratulations!

There is a mental shift when it comes to going from business owner to employer, and it’s not always an easy one. When you start your own business, you are looking after everything yourself. Having an employee come aboard means that you have to consider delegating tasks. On top of this, you have to think about the fact that this person is relying on you for their livelihood; you’ve got wages to pay every week or month.

A Living Wage

If you decide that you need to hire an employee for your business, you need to ensure that you are paying them more than the national minimum wage: you want them to be paid enough to live. Currently, a living wage in London is £10.55 per hour and £9 elsewhere, which means that you need to find enough money in your budget to cover between £16,380 and £19,201 per year. When it comes to recruitment for the second pair of hands in your business, you need to think bigger than their salary. Whether you pay a national minimum wage or the living wage, you need to consider the other costs surrounding their employment.

Employment Costs

You have to deduct PAYE tax and National Insurance Contributions from the wages of your new employee, but as well as this, you are responsible for the following costs:

Employers National Insurance Contributions of 13.8% of any salary above the National Insurance Secondary threshold. Your accountants should be able to talk you through all the money that you must pay out for your employees, so make sure that you ask them for tax help.

  • Auto-enrolment pension contributions, of which the minimum is 8% in the 2019/20 tax year. When there is a minimum of 3% coming from the employer and the balance from the employee.
  • Employers liability insurance
  • Equipment so that your new employee can do their job
  • Costs of running an RTI compliant PAYE payroll system

These costs can be discussed with your accountant before you start advertising. This way, you’ll know whether you are in a position to afford to hire someone in the first place.

Employee Entitlements

While you are totalling up your years’ costs of the above things to pay for, you mustn’t forget the employee entitlements that you need to consider. This includes:

  • Holiday pay
  • Sick pay
  • Maternity/paternity pay

They need to have the right employee contracts in place, too, as well as thinking about how to recruit and retain that employee of which you have so carefully planned. Bringing on a new member of staff is a great way to grow your business, all you need to do is consult one of our Exeter based accountants to know whether it’s viable for you.

If you would like more information about the cost to hire an employee, contact us today.

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