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Taking on Employees – The Costs Involved

October 2016

Making the decision to take on employees is a big step for any business; it is both an exciting and daunting time. As I’m sure you’re aware, there are costs associated with taking on employees. As the owner of the business, you need to weigh-up whether or not an employee will bring value to your company that outweighs their cost to your company.

There are more costs involved in recruiting employees than just salaries, some of the key costs are as follows:


Let’s start with the obvious, your employees will need to be paid a wage. Whether they are paid hourly, or a fixed yearly rate is up to you. This is probably the main cost you have accounted for, but it is vital you properly consider it. The nature of the work the employee will be doing will define the amount you pay, but it is recommended you pay the “going rate” for the job the employee does in order to ensure you retain staff.

Recruitment Costs

Don’t underestimate recruitment costs. Recruiting employees can be a costly process, but it is essential to get applicants for the role. You can advertise for the position yourself, or you can outsource it to a recruitment agency. As a general rule of thumb, you can expect to pay up to a fifth of the new employee’s first year’s salary as a fee. It is cheaper to advertise for yourself, but it is far more time consuming and won’t be entirely free of cost. If this cuts into your work time, advertising yourself may end up costing more in the long-run.

Administrative Costs

When you become an employer, you will need to spend time and probably money carrying out admin duties such as ensuring wage payments are processed properly, as well as any additional payments such as tax and pension contributions. These functions can often become a full-time job in themselves, so outsourcing payroll to a specialist is often simpler and more cost-effective.

Employee Rights and Benefits

As an employer, there are certain rights and regulations you need to adhere to. You need to be confident you can honour these obligations before taking any employees onboard. The employee you hire may be eligible for a workplace pension under auto-enrolment, this means you will incur the cost of employer contributions. In addition to this, you will have to honour rights such as sick leave, maternity leave and paid holidays. All these things will undoubtedly cost your business money but must be honoured.


As an employer, you are obligated to take out Employers’ Liability Insurance. You should look into this before taking on an employee, but be aware that failure to take out a policy can result in fines of up to £2,500 per day!

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