What an employee costs
On top of gross pay, an employer pays Class 1 National Insurance and a workplace pension contribution. For the 2026 to 2027 tax year (6 April 2026 to 5 April 2027):
- Employer National Insurance: 15% of earnings above the secondary threshold of £5,000 a year (£417 a month).
- Workplace pension: for staff who are auto-enrolled, at least 3% from the employer, with a minimum of 8% in total. On the most common basis, it is worked out on earnings between £6,240 and £50,270 a year.
| Item | A year | A month |
|---|---|---|
| Gross salary | £35,000.00 | £2,916.67 |
| Employer National Insurance: 15% × (£35,000 − £5,000) | £4,500.00 | £375.00 |
| Employer pension: 3% × (£35,000 − £6,240) | £862.80 | £71.90 |
| Total cost to the employer | £40,362.80 | £3,363.57 |
So this employee costs about 15% more than their salary. Monthly figures are the yearly ones divided by 12; real payroll works period by period, so they can differ by a few pence.
Employment Allowance
Eligible employers can reduce their employer National Insurance bill by up to £10,500 a year in 2026 to 2027. A business with three employees like the one above would owe £13,500 in employer National Insurance, less £10,500, so £3,000.
Most businesses and charities can claim. A company whose only employee paid above the secondary threshold is its sole director cannot. You claim it through your payroll software.
Three payments, three dates
- Net pay on your payday.
- PAYE to HMRC: income tax and employee National Insurance deducted from pay, plus employer National Insurance (and student loan deductions), by the 22nd of the next tax month if you pay electronically. Tax months run from the 6th to the 5th, so pay made on 28 November falls in the tax month ending 5 December and the PAYE is due by 22 December. Cheques must arrive by the 19th. Employers who usually pay less than £1,500 a month may be able to pay quarterly; ask HMRC's payment helpline.
- Pension contributions to the scheme: by law, contributions taken from pay must reach the scheme by the 22nd of the next month (the 19th by cheque), on the dates you have agreed with your scheme provider.
In a forecast, that means one payroll creates three outgoings: net pay in the payday week, PAYE about three weeks later, and the pension on or before the 22nd. The PAYE payment dates tool gives your exact dates.
If PAYE is paid late
HMRC charges a penalty when PAYE is paid late more than once in a tax year. The first late payment does not count. After that, the penalty is 1% of the late amount for 1 to 3 defaults, rising to 4% for 10 or more, plus a further 5% if a payment is still unpaid after 6 months and another 5% after 12 months. Interest is also charged. If you cannot pay on time, see what to do if you cannot pay HMRC on time.
Planning a new hire
Put the full cost, not the salary, into your forecast from the first payday, and remember the National Living Wage (£12.71 an hour from April 2026 for workers aged 21 and over) when costing junior roles. Test a hire before you make it shows how to model it as a scenario. In Cadence, payroll and PAYE go in as recurring outgoings on their own dates, so the forecast shows the PAYE week, not just payday. You can try it free for 14 days.
This guide is general information, not tax or payroll advice. Rates for 2026 to 2027 as published on GOV.UK and by The Pensions Regulator; check them before you rely on them.