You have agreed £28,000 with someone who seems capable and wants the job. You budget £28,000. That is the mistake, and it is not a small one, because the number you have actually committed to is closer to £34,000 before anyone has done a day of useful work.
None of the extras are hidden. They are all published, all predictable, and all missed by people doing the sums on the back of a delivery note.
The statutory additions are fixed and immediate
Employer National Insurance is the largest single addition. From 6 April 2025 the employer Class 1 rate is 15% on earnings above the secondary threshold of £5,000 a year, a threshold cut sharply from the £9,100 that applied before. Rates and thresholds are set at fiscal events, so confirm the current figures, but the shape is stable: you pay a percentage of nearly all of the salary, not of the part above some generous allowance.
On £28,000 that is 15% of £23,000, which is £3,450.
Against that sits the Employment Allowance, which reduces an eligible employer's Class 1 secondary NI bill by up to £10,500 a year as of April 2025. For a business taking on its first employee this often wipes out the employer NI entirely. The trap is that a company whose only employee is also its sole director cannot claim it. If you are a one-person limited company hiring your first person, check the eligibility rules before you assume the allowance covers you.
Pension auto-enrolment is next. Under the Pensions Act 2008 you must enrol any eligible jobholder, broadly aged 22 to State Pension age and earning over £10,000 a year. The minimum total contribution is 8% of qualifying earnings, of which at least 3% must come from you. Qualifying earnings is a band, currently between £6,240 and £50,270, so on £28,000 your 3% applies to £21,760, giving £652.80. You also have duties to The Pensions Regulator: a declaration of compliance, re-enrolment every three years, and records.
Employers' liability insurance is a legal requirement under the Employers' Liability (Compulsory Insurance) Act 1969 from the day you have an employee. Minimum cover is £5 million, though policies are commonly written at £10 million. Failure to hold it can be penalised at up to £2,500 for each day you are uninsured. Premiums vary enormously by trade, from low hundreds for an office to several thousand for construction.
Holiday is pay you have already promised
Statutory holiday is 5.6 weeks a year under the Working Time Regulations 1998, which is 28 days for someone working five days a week, and you are permitted to count bank holidays within that entitlement. Whichever way you present it, you are paying 52 weeks of salary for roughly 46.4 weeks of work.
That is not an extra cost on top of the salary. It is a reason the salary buys less than you think. If you need the shop open on the days they are off, you pay somebody else to be there, and that is the extra cost.
Then there is sickness. Statutory Sick Pay is a weekly rate set by government and reviewed annually, paid by you, and employers have not been able to reclaim it since the Percentage Threshold Scheme was abolished in 2014. Add whatever cover costs you when the shop is short-handed.
The first three months produce very little
Everyone knows this and nobody budgets for it. A new person in a small business spends their first weeks learning your systems, your customers and the way you do things, and they learn most of it from you, which means your own output drops while you teach.
A reasonable planning assumption for a small business, not a study finding but a working rule many owners arrive at, is that a new hire is meaningfully productive from month three or four, and that you personally lose some hours across that period. Budget the salary in full and the output at a fraction.
The other thing that happens in those months is recruitment cost, which you have already spent: advertising, your time reading applications, interviews, and any agency fee, which for a permanent placement commonly runs at a percentage of first-year salary.
The whole number, and what to do with it
Rough annual cost of a £28,000 hire, before the Employment Allowance:
- Salary: £28,000
- Employer NI at 15% above £5,000: £3,450
- Pension at 3% of qualifying earnings: £653
- Employers' liability insurance: £400 to £2,000 depending on trade
- Equipment, phone, workwear, software seat: £500 to £2,000
That is £33,000 to £36,000, and it assumes nothing goes wrong. If the Employment Allowance applies to you, take the NI back out and you are near £30,000. Either way, the honest planning figure is the salary plus a quarter, and more for a trade with expensive insurance.
The right response is not to be frightened of it, because a hire that works is the only way most small businesses get past the owner's own capacity. The right response is to know the number before you make the offer, so the decision is about whether the role generates more than £34,000 of value rather than whether you can find £28,000.
One practical note. Payroll itself is a duty, not an option. You must register as an employer with HMRC before the first payday, operate PAYE, and report each payment to HMRC on or before the day you pay it under Real Time Information. Payroll software or a bookkeeper will cost a few hundred a year and will save you more than that the first time you get a tax code wrong.
Where this shows up in the game
Business Baron charges you the real number. Hire someone in the game and you see employer NI, the pension contribution, the insurance and the holiday cover come off the month, and you watch the first quarter where you are paying for someone who is still learning. It is the point at which a lot of players discover their business was only profitable because they were working for nothing. You can make that mistake with a café or a salon in the free game, at no cost to yourself.