Why a pay rise costs more than the headline number
When an employee asks for a 50p per hour rise, the real cost to the business is not 50p. It is roughly 60p once employer National Insurance, workplace pension, and holiday accrual are layered on. For a 30-hour-a-week employee that is the difference between £15 a week and £18 a week. Across a five-person team it is the difference between £3,900 a year and £4,680 a year.
Most operators sign off pay rises against the headline rate alone. This calculator shows the all-in cost so you can budget honestly, and so you can decide whether a specific rise is affordable before you commit to it.
The three on-costs to model on every rise
- Employer National Insurance. 15% of earnings above the £96 per week secondary threshold. Apprentices under 25 and employees under 21 have a higher threshold (£481 per week) so a rise can move them across the line.
- Workplace pension. Minimum employer contribution is 3% of qualifying earnings. Higher if your scheme is more generous.
- Holiday accrual. 12.07% covers the statutory 5.6 weeks for hourly workers. A rise lifts holiday pay automatically because it is calculated as a percentage of earnings.
April 2026 context: NMW and SSP both rise on the same day
From 6 April 2026 the National Living Wage rises to £12.71 per hour for 21+ workers, £10.85 for 18-20s, and £8.00 for apprentices and under-18s. Statutory Sick Pay also changes on the same date (day-one payment, no Lower Earnings Limit, 80% of AWE rate). For deeper context read the true cost of the April 2026 NMW rise, the impact of last year’s employer NI rise, and the full April 2026 cost cliff for cafes.
Frequently asked questions
What is the National Minimum Wage in the UK?
The National Living Wage (for workers aged 21+) is £12.71 per hour. The rate for 18-20 year olds is £10.85, and for under-18s and apprentices it is £8.00 per hour.
What is the true cost of an employee in the UK?
The headline hourly rate is only part of the cost. Employers also pay National Insurance (15% above the £96 per week threshold), workplace pension contributions (minimum 3%), and holiday accrual (12.07% for 5.6 weeks statutory). On top of base pay these typically add 20-25% to the cost of a minimum-wage employee.
How much does employer National Insurance cost?
Employer NI is charged at 15% on earnings above the secondary threshold of £96 per week (£5,000 per year). For a full-time employee on minimum wage, this adds a substantial amount to the base salary cost.
How do I calculate the real cost of giving a pay rise?
A pay rise increases not just the hourly rate but also employer NI (15% of the increase above the threshold), pension contributions (3% of the increase), and holiday pay accrual (12.07% of the increase). A 50p per hour pay rise for a 30-hour worker costs more than £15 a week once all on-costs are included.
What does a pay rise actually cost an employer?
Beyond the headline rate increase, employers absorb roughly 20-25% in additional on-costs: employer National Insurance at 15%, workplace pension contributions, and holiday accrual at 12.07%. A 5% pay rise typically costs an employer closer to 6% once all on-costs are included.