How it's calculated
The cost of an employee is their salary plus four extra costs set by law or by your pension scheme. All figures are for the 2026/27 tax year (6 April 2026 to 5 April 2027). The National Insurance, Employment Allowance and Apprenticeship Levy rules are the same across the UK, so where the employee lives does not change the result.
Employer National Insurance
Employers pay Class 1 secondary National Insurance of 15% on each employee's pay above the secondary threshold, with no upper limit. It is worked out on each payslip on its own, using that period's threshold.GOV.UK (HMRC)
| 2026/27 threshold | Per week | Per month | Per year |
|---|---|---|---|
| Secondary threshold (employer NI starts) | £96 | £417 | £5,000 |
| Upper secondary threshold (under 21, apprentice under 25, veteran) | £967 | £4,189 | £50,270 |
For category M (under 21), H (apprentice under 25) and V (armed forces veteran, for the first 12 months of their first civilian job) the employer pays 0% up to the upper secondary threshold and the full rate above it. The employee's own National Insurance does not change. The veterans relief was extended to the 2026-27 and 2027-28 tax years by regulation 6 of SI 2026/231.legislation.gov.uk
Employment Allowance
Eligible employers can take up to £10,500 a year off their employer Class 1 National Insurance. It is used up payroll by payroll until it has gone or the year ends, and it can never be worth more than the employer NI itself: HMRC does not refund the difference. Enter the amount you still have, and the calculator sets it against this employee's employer NI only.GOV.UK
You cannot claim it if:
- you are a public body, or a business doing more than half its work in the public sector (unless you are a charity)
- your company has one director and that director is the only employee paid above the secondary threshold
- the pay falls under the IR35 off-payroll rules, or the worker is household staff such as a nanny or gardener (care and support workers are allowed)
Connected companies or charities get one allowance between them, claimed on one payroll, and it has to be claimed again each tax year.
Apprenticeship Levy
Employers whose pay bill (including connected companies) is over £3,000,000 pay a levy of 0.5% of the whole pay bill, less an allowance of £15,000. The pay bill is all earnings subject to employer Class 1 National Insurance, including pay below the threshold and the pay of under-21s, apprentices and veterans. The allowance belongs to the employer, not to each employee, so the calculator adds 0.5% of this employee's pay and leaves the allowance out.HMRC
Workplace pension
By default the calculator uses the auto-enrolment minimum: the employer pays 3% of qualifying earnings, which are earnings between £6,240 and £50,270 a year. It applies to workers aged 22 to State Pension age who earn over £10,000. Choose "Custom %" if your scheme pays a percentage of full salary instead. Employer pension contributions are not subject to National Insurance.The Pensions Regulator
The formula
- Employer NI per payslip = 15% × (pay − secondary threshold, if positive), or 15% × (pay − upper secondary threshold, if positive) for categories M, H and V. Yearly employer NI = per-payslip figure × number of payslips.
- Employment Allowance used = the lower of the allowance you enter and the yearly employer NI.
- Apprenticeship Levy = 0.5% × salary, only if your pay bill is over £3,000,000.
- Auto-enrolment pension = 3% × (the lower of salary and £50,270, minus £6,240), when salary is over £10,000.
- Total cost = salary + employer NI before the allowance − Employment Allowance used + levy + employer pension + other costs.
Worked example
| Line | Year | Month |
|---|---|---|
| Salary | £35,000.00 | £2,916.67 |
| Employer NI: 15% above £417 a month | £4,499.40 | £374.95 |
| Employer pension (3% of £28,760 qualifying earnings) | £862.80 | £71.90 |
| Total cost to employer | £40,362.20 | £3,363.52 |
On a £35,000 salary paid monthly, employer National Insurance is £4,499.40 a year and the minimum pension is £862.80, so the employee costs £40,362. With the full Employment Allowance still available, £4,499.40 of it cancels that NI and the cost falls to £35,863.
HMRC's own example in CWG2 is an employee under 21 (category M) paid £5,000 in a month: the employer pays 0% up to £4,189 and 15% on the remaining £811, which is £121.65.HMRC Over a year of £5,000 months (£60,000), that is £1,459.80, against £8,249.40 for a category A employee on the same pay. If that employer's pay bill is over £3,000,000, the levy adds £300.00.
| Line | Year | Month |
|---|---|---|
| Salary | £60,000.00 | £5,000.00 |
| Employer NI: 0% up to £4,189 a month, 15% above | £1,459.80 | £121.65 |
| Apprenticeship Levy (0.5% of pay) | £300.00 | £25.00 |
| Employer pension (3% of £44,030 qualifying earnings) | £1,320.90 | £110.08 |
| Total cost to employer | £63,080.70 | £5,256.73 |
Assumptions and limitations
- Equal pay every period. Bonuses and overtime are charged in the period they are paid, so a bonus month can cost more employer NI.
- Category letters A, M, H and V only. Freeport and Investment Zone categories, deferment letters and category C (over State Pension age, where the employer still pays the same rate as category A) are not offered. Company directors use an annual earnings period, which is not modelled.
- Pension minimum on annual pay. Schemes test each pay period with The Pensions Regulator's rounded per-period thresholds, which can differ by a few pounds. The auto-enrolment figures are the ones set for workers in Great Britain; Northern Ireland's own rules are not covered here.
- Not included: salary sacrifice, Class 1A National Insurance on benefits in kind, statutory pay and its recovery, holiday cover and recruitment costs. Add regular extra costs under other annual costs.