Don’t underestimate increased cost of employing staff – expert

Businesses planning for the next financial year are being urged to factor in the full cost of employment ahead of a series of new changes.

The changes coming into force in April 2026 will increase the cost of hiring staff.

HB&O, which has offices in Coventry, Leamington and Birmingham, is warning that many employers may underestimate the full cost of taking on employees when planning their workforce requirements for the next financial year.

Ioana Mateias, payroll expert at HB&O, said: “There are so many variables depending on the business and what benefits are offered, but National Insurance, pensions and statutory costs all add up, which are all non-negotiable for businesses.

“Using a £35,000 salary as an example, the total cost of employment has increased noticeably.

In 2023/24, an employee on £35,000 generated £3,574.20 in employer National Insurance and £1,050 in pension contributions (assuming no qualifying earnings band was used), bringing the total cost to £39,624.20 per year.

“Under 2026/27 rates, employer National Insurance rises to £4,500 taking the total cost, including £1,050 in pension contributions, to £40,550 per employee. This represents an increase of £925.80 per employee per year.

“Across a workforce of 20 employees on the same salary, this results in an overall increase of £18,516 from which eligible employers can claim the £10,500 Employment Allowance (increased from £5,000).

“That is only a base rate too; it doesn’t include any additional benefits that employers give to staff or different pension schemes, such as salary sacrifice.”

National Minimum Wage rates are increasing from April 2026, with the rate for those aged 21 and over rising from £10.42 to £12.71 per hour.

She said: “The employer National Insurance threshold has come down to £5,000 and the rate has increased to 15%. That has a huge effect on the overall cost of employing someone.

“When minimum wage increases, it doesn’t just affect salary. It increases National Insurance and pension contributions as well, so the overall cost to the employer goes up.”

While costs are increasing for most roles, the situation is different for entry-level positions.

An apprentice aged 20 earning £8 per hour would receive £1,300 per month, with no employer National Insurance payable provided earnings remain within the exemption threshold. This results in a total employer cost of £15,600 per year.

Mateias said: “Apprentices who meet the qualifying criteria can be a more cost-effective way of bringing people into the business, for companies of all shapes and sizes.

“For some roles, it can be a way of managing rising employment costs while still investing in future talent.”

All employers, regardless of size, are also being advised to prepare for changes to Statutory Sick Pay. From April 2026, sick pay will be payable from the first day of absence, removing the previous three-day waiting period and extending eligibility to more employees.

Further changes mean that rights such as paternity leave will become day-one rights, increasing employer responsibilities from the start of employment.

Mateias said: “This is one of the biggest changes from an employer perspective. Previously there was a waiting period, but now you will be paying from day one.

“That will have a knock-on effect on costs, particularly for businesses with larger teams. We always advise clients to look at the updates every April and plan ahead.

“Some businesses are quite aware of the changes, but others still need support to understand what it means in practice.”

For more information and to speak to a payroll expert from HB&O visit https://hboltd.co.uk/payroll/