Taking on your first employee is an exciting milestone for any business. It can be a sign that your business is growing, demand is increasing and you’re ready to take the next step.
But before you advertise that new position, there is one important question you need to answer:
Can your business afford the true cost of employing someone?
If you’re budgeting for a salary of £30,000 a year, for example, it’s easy to look at that figure and assume that £30,000 is what the employee will cost you.
Unfortunately, it isn’t quite that simple.
The salary is only part of the cost
When you’re working out whether you can afford your first employee, you need to look beyond their basic salary and consider all of the additional costs associated with employing them.
These can include:
- Employer National Insurance contributions
- Workplace pension contributions
- Holiday pay
- PAYE and payroll administration
- Payroll software or payroll support
- Equipment and software
- Training and development
- Employment-related benefits
- Recruitment and onboarding costs
There may also be additional costs depending on the role; such as uniforms, professional subscriptions, travel expenses, company vehicles or specialist equipment.
Don’t forget that you’ll still be paying many of these costs while your employee is on annual leave or absent from work.
Employer National Insurance is an important consideration
Employer National Insurance is one of the additional costs that businesses need to factor into their employment budget.
Since April 2025, the main rate of employer National Insurance increased to 15%, while the secondary threshold at which employers start paying National Insurance was reduced.
This means the additional cost of employing someone can be significant, particularly for businesses taking on their first member of staff.
It’s therefore important not to base your recruitment decision purely on the advertised salary.
So, what does a £30,000 employee really cost?
Let’s say you’re considering employing someone on a salary of £30,000.
Your starting point is £30,000, but you’ll then need to add employer National Insurance, pension contributions and other employment costs.
You may also have one-off costs associated with recruiting and setting up your new employee, such as advertising the position, providing a laptop, purchasing software licences or arranging training.
The exact figure will depend on your circumstances, the employee’s salary and the benefits and equipment you provide.
That’s why it’s worth working out the total annual employment cost before you commit to the recruitment process.
Don’t forget about cash flow
It’s not just about whether your business is profitable enough to employ someone.
You also need to consider cash flow.
Your employee will expect to be paid every month, regardless of whether you’ve had a particularly quiet month or whether a customer has been slow to pay an invoice.
You’ll also need to account for periods when your employee is away on annual leave or off sick.
For a growing business, taking on an employee can be a fantastic investment. But you need to make sure your cash flow can comfortably support that commitment.
The question to ask before you recruit
Instead of asking:
“Can my business afford a £30,000 salary?”
you should be asking:
“Can my business comfortably afford the total cost of employing someone?”
That’s a very different question.
Getting your numbers right before you start recruiting can help you understand what you can realistically afford and whether now is the right time to take on your first employee.
It can also help you determine what salary you can offer, whether you need to adjust your budget and how much additional revenue your new employee may need to generate to make the role financially sustainable.
Planning to take on your first employee?
Recruiting your first employee comes with a range of responsibilities, from calculating employment costs and setting up payroll to understanding your obligations as an employer.
Don’t wait until you’ve found the perfect candidate to work out whether you can afford them.
At Chapman’s Business Solutions, we can help you get your numbers right before you start recruiting, so you have a much clearer picture of the financial commitment you’re making.
If you’re thinking about taking on your first employee, give us a call on 01775 529345 or email office@cbsltd.org.
A little planning now could save you a very expensive surprise later.
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