Payroll & Employment Cost Planning

The decision depends on your needs, budget, and control requirements. Employees provide continuity, loyalty, and team integration, but cost 20–30% more than salary alone once you factor in employer NI (15%), pension contributions, holiday pay, sick pay, and employment rights. Contractors offer specialist skills and flexibility, but charge higher day rates and may fall under IR35 rules if the relationship looks like disguised employment. We model both scenarios with your actual numbers to show the financial comparison clearly.

The true employment cost significantly exceeds the salary figure. On a £30,000 salary, total employer costs reach approximately £37,440 annually including gross salary £30,000, employer National Insurance £3,750 (15% on earnings over £5,000, though Employment Allowance may reduce this), minimum pension contributions of 3% of qualifying earnings, and holiday pay accrual. As a rule of thumb, budget an additional 20–30% on top of the stated salary to cover total employment costs.

IR35 determines whether contractors working through personal service companies should be taxed as employees. If HMRC deems a contractor is essentially an employee (based on control, substitution rights, and mutuality of obligation tests), you must deduct income tax and National Insurance as if they were employed. For medium and large private sector businesses, you must assess the contractor’s status. We help assess contractor relationships, review contracts, determine IR35 status, and structure arrangements to minimise risk while ensuring compliance.

Employment Allowance lets eligible employers reduce their employer National Insurance bill by up to £10,500 per year (increased from £5,000 in April 2025). Most small businesses qualify — the previous £100,000 NI bill limit was removed in April 2025, making more businesses eligible. You cannot claim if you are a one-person company where you are the sole employee and director. We ensure you claim it if eligible and maximise your benefit.

Every employer must automatically enrol eligible workers into a workplace pension scheme and contribute at least 3% of qualifying earnings (employees contribute a minimum of 5%, total 8%). Eligible workers are aged 22 to State Pension age earning over £10,000 annually. Non-compliance can result in escalating penalties from £400 to £10,000 depending on employer size and breach severity. We handle all auto-enrolment obligations, ensuring full compliance with pension law.

RTI requires employers to report payroll information to HMRC digitally each time employees are paid, through a Full Payment Submission (FPS). The FPS includes employee pay, tax deducted, National Insurance, and other deductions, and must be submitted on or before the payment date. Late or missed RTI submissions trigger automatic penalties starting at £100 per month for businesses with 1–9 employees, rising to £400 for larger employers. Our payroll systems submit RTI returns automatically before each pay date.

UK employers must provide Statutory Sick Pay (£118.75 weekly for employees earning over £123 weekly who are sick for 4 or more consecutive days), Statutory Maternity Pay for up to 39 weeks (90% of average weekly earnings for the first 6 weeks, then £187.18 weekly for the remaining 33 weeks), Statutory Paternity Pay (1–2 weeks at £187.18 weekly), and Statutory Shared Parental Pay. Most employers can reclaim 92–103% of statutory payments from HMRC through reduced PAYE payments.

UK businesses typically run payroll monthly, which reduces administrative burden and aligns with most employees’ expectations for salaried positions. However, some businesses pay weekly (common in construction, hospitality, and manual labour), fortnightly, or four-weekly. Monthly payroll costs less to outsource, reduces administrative time, and simplifies cash flow planning. Most small businesses find monthly payroll most practical unless industry norms or employee preferences dictate otherwise.