How much does an employee really cost an employer in the UK?▾
The true cost is typically 110-120% of the gross salary. On top of the gross salary, employers pay employer NI (15% above the secondary threshold from April 2025), workplace pension (minimum 3%), and may have additional costs like sick pay, holiday pay, training, equipment and benefits. For an employee on £30,000, the total cost is approximately £34,000-£36,000.
What is employer National Insurance and how much is it?▾
From April 2025, employer NI is 15% on earnings above £5,000 per year (the secondary threshold). There is no upper limit on employer NI. For an employee earning £30,000, the employer NI is approximately £3,750 per year. Small businesses may qualify for the Employment Allowance of £10,500 to offset employer NI.
What are the UK income tax bands for 2025/26?▾
The income tax bands for 2025/26 are: Personal Allowance £0-£12,570 (0%), Basic Rate £12,571-£50,270 (20%), Higher Rate £50,271-£125,140 (40%), Additional Rate over £125,140 (45%). The Personal Allowance reduces by £1 for every £2 earned over £100,000.
What is the minimum employer pension contribution?▾
Under auto-enrolment, the minimum employer contribution is 3% of qualifying earnings (earnings between £6,240 and £50,270). Many employers simplify this by contributing 3% of total gross salary. Some employers offer more generous schemes at 5-10% or match employee contributions.
How do student loan deductions work through payroll?▾
Student loan deductions are made through payroll based on the plan type. Plan 1: 9% over £22,015. Plan 2: 9% over £27,295. Plan 4 (Scotland): 9% over £27,660. Plan 5: 9% over £25,000. Postgraduate: 6% over £21,000. If on both an undergraduate and postgraduate loan, both deductions apply.
What is a tax code and how does it affect payroll?▾
A tax code tells the employer how much tax-free pay an employee is entitled to. The standard code 1257L means £12,570 tax-free. Other codes may include adjustments for benefits in kind, underpaid tax from previous years, or multiple income sources. HMRC issues tax codes via P2 notices.
When do I need to run payroll?▾
You must run payroll before or on each pay day and report to HMRC on or before the pay date using Real Time Information (RTI). Most employers pay monthly, but weekly, fortnightly and four-weekly are also common. You must also submit a Full Payment Submission (FPS) each pay period and an Employer Payment Summary (EPS) if needed.
What is the Employment Allowance?▾
The Employment Allowance lets eligible employers reduce their employer NI liability by up to £10,500 per year (from April 2025). Most small and medium businesses qualify. You cannot claim if you are a sole director company with no other employees, or if your employer NI liability was over £100,000 in the previous tax year.
Do I need payroll software?▾
Yes, if you have employees. You must report payroll to HMRC in real time using RTI-compliant software. Options include: HMRC Basic PAYE Tools (free, up to 10 employees), commercial software like Xero, Sage, or QuickBooks, or outsourcing to an accountant or payroll bureau. Software costs £5-£30/month for small businesses.
What are the penalties for late payroll submissions?▾
Late FPS submissions attract penalties: 1-3 employees £100/month, 4-9 employees £200/month, 10-49 employees £300/month, 50+ employees £400/month. Late payment of PAYE/NI to HMRC also attracts penalties starting at 1% of the amount due for 1-3 late payments in a year, rising to 4% for 10+ late payments. Interest is also charged on late payments.