This calculator accounts for all the hidden costs that can easily be overlooked and reveals the true cost of an employee.
It will help you identify whether it could be more cost effective to outsource a job and reduce business costs.
As you enter the costs that are relevant to your business the true cost of an employee will be updated and shown in the results at the bottom.
You’ll probably be surprised at how much greater the true cost is compared with the basic salary.
We’ve included a useful pie chart to clearly show the breakdown of costs.
True Cost of an Employee calculator user guide
Steps 1 to 3 allow you to enter the direct remuneration costs of an employee. The Calculator will show the total payroll cost at the end of Step 3.
Steps 4 to 7 will allow you to enter all of the additional hidden costs of an employee.
The True Cost section will show the actual cost per year, per day and per hour, and show the multiple of salary.
Step 1 : Basic Annual Salary and Hours
Enter the contractual Basic Gross Salary before deductions.
You’ll be able to enter bonuses and other payments in Step 2. You’ll also be able to enter Pension and Other benefits in Step 3.
For part-time employees, enter the annual pay and the number of hours worked per week.
The calculator will show the Hourly Rate of pay.
National Insurance (NI) Letter Code
Enter the employee’s NI Letter Code. The default NI Code Letter is ‘A’.
Change this if your employee’s Code Letter is different to see the Employer NI Contributions.
Step 2 : Enter Additional Payments
Enter the Annual Bonus / Commission, Overtime, other taxable payments.
The calculator will then show the Total Taxable Income.
The Employer’s (Secondary) NI Contribution is calculated using the threshold values for the NI Letter Code selected.
The calculator will then show the Total Salary Cost at this stage.
These are the current thresholds for Employer’s (Secondary) NI Contributions
Step 3 : Enter Optional Benefits
This is where you should enter other taxable benefits. We have illustrated some typical benefits.
Although a Workplace Pension might apply, there are different rates for employer contributions, depending on the type of scheme in place. For simplicity, enter the total employer’s contribution that will apply.
Where benefits are provided through a Salary Sacrifice Scheme, the NI Contribution will be reduced.
The Calculator shows the Benefit in Kind Class 1A NICs (P11D). The current rate is 13.8%.
It shows the Total Payroll Cost. This is the total direct cost of an employee’s remuneration and benefits plus the Employer’s NI Contributions.
The Hidden Costs
So far, you’ve entered all of the remuneration costs. But it’s easy to overlook many of the other costs of employing someone.
So from Step 4 onwards you can enter these hidden costs.
Step 4 : Enter Facilities and Other Costs
These are costs that are specific to the individual employee. We’ve illustrated some typical examples, such as software and IT resources, training, etc.
Step 5 : Enter Apportionment of Office Costs
These are the general business costs that are shared by all employees. You might decide to omit this section, but in reality it can be significant and shouldn’t be overlooked.
Try entering some values here to see the impact.
Step 6 : Enter Other Costs and Potential Liabilities
You might look at these costs and decide that they don’t apply just now. But whet would be the impact if circumstances changed?
You might want to test the impact, or you can always use this section in the future.
Step 7 : Enter Holidays and other lost time
A normal year (not a leap year) has 365 days less 52 weekends, so there are 261 working days.
The minimum holiday entitlement for full time employees is 28 days, but that can include 8 days paid Bank Holidays. Enter your business holiday entitlement, including Bank Holidays.
Part time employees are entitled to the pro-rata number of days. So, if employee works 2 days per week the entitlement is 2/5 of the normal full time entitlement, ie 11.2 days
This is pre-populated, based on the HM Government Office for National Statistics (ONS) latest figures.
The average employee has 4.4 days off sick a year. 12% of absences are not thought to be genuine.
NB: The figure in this box will change pro rata if the number of hours worked per week is changed from the reference figure of 35 hours used by ONS.
Wasted / Unproductive Time
Surveys have found that more than a third of time is wasted or unproductive. It can be time socialising with colleagues, taking a refreshment break, walking from one office to another in the same building, visiting the rest room, distractions, etc.
The figure we have used is a conservative estimate of 25%.
The True Cost of an Employee
The True Cost section shows the actual cost per year, per day and per hour.
It will also show the multiple of salary. The True Cost of and Employee is unlikely to be less than 1.7 times basic salary.
So, if you thought you were going to pay an hourly rate of about £18, the true hourly rate will be over £30.
*Please note that the calculator will add National Insurance for employees under the age of 20 even though National Insurance is unlikely to be due in most occasions for this age group