Total cost per year of min wage employee

happywarmgun

So I've reached that point in my business growth where I realise I need a full time, my guy/gal, employee (currently sub this work).

Can someone help me with this question: What is the real cost to the employer of a min wage employee for a year (assume 38 hrs Pw) I mean not just hrs x salary, but also NI plus extra insurance plus running a payroll plus whatever else. What won't I have thought of when I do my back of envelope calculations? Every business must have gone through this. What are the real numbers?

Mistral001

This is a good question? I know that I not a nasty shock when I employed my first employee. Lots of hidden cost as well as the employers NI.

I no longer employ anybody because of business downturn so not up to date, but in general the biggest cost to me was actually the time it took me to administer it and when I registered with PAYE as an employer, I kept getting correspondence form them for years after my last employee left despite writing several times to say that I was no longer an employer.

If you can get someone to handle the payroll such as your accountant, it is well worth it unless you have lots of time on your hands. My accountant was able to do in minutes what it took me hours to do on my own.

I hope someone who as employees currently can give you actual figures.

Savvy_Sue

worth pointing out that within the next few years you may be required to make pension contributions - currently you have to set up and offer a plan if you have more than 5 (?) staff, but you don't have to make contributions as an employer, plan is that you will have to make contributions of at least 3%.

We usually do a back of the envelope figure of net salary plus 10% to cover NI, but I'm sure the first one is more significant.

More equipment for them? You might be happy working on a broken chair on the kitchen table, but providing a proper chair and table of the right height is essential, IMO.

Remember that you WILL have to pay holiday pay and Stat Sick Pay (but will get an NI rebate for SSP as a small employer) - will you need to pay someone to cover that? You also cannot afford not to know what the law says about terminating employment, and having a good disciplinary and grievance procedure will pay dividends should you ever need it.

Lovelyjoolz

OK, so it you employed someone aged 21+ you'll be paying them £6.08 per hour.

@ 38hrs/wk over 52 wks, that's £12,014 per annum

From that, your employee will take home about £10,500 and you will pay over their PAYE and NIC to the HMRC every month, totalling around £1,500 a year. In addition to that, you'll pay around £700 in Employers NIC to the HMRC.

Minimum wage is less for people younger than 21 is less, and your costs would therefore be less.

In terms of payroll costs, you'll have to generate a payslip which will only cost you a few pence each month. You'll also have to factor in your time, but with one employee it will only take you about 10 minutes each month. If you use the Revenue's Basic PAYE tools software (free download) you won't need to buy any payroll software.

You'll have to register as an employer and process a payroll year end, which straightforward, but you'll probably want to take half a day over your first one, just to be sure you've not missed anything.

Other than that, I think your costs in terms of payroll will be minimal.

patman99

As their wages are a business expense, would the business not then save 20% of that on their tax bill ?.
If so, then the outlay would be (approx.) £12714-2542=£10171

Russe11

Savvy_Sue wrote: »

worth pointing out that within the next few years you may be required to make pension contributions - currently you have to set up and offer a plan if you have more than 5 (?) staff, but you don't have to make contributions as an employer, plan is that you will have to make contributions of at least 3%.

NEST (national employment savings trust? or somthing like that)comes in next year, which I thought ment that all employers must contribute on a sliding scale, and all employees must make a contribution out of their wage. As a employer you can choose to offer what ever scheme you like, but NEST has been set up as a easy option.

Russe11

I should say compulsory to sign up to a scheme, NEST is already up and running

anamenottaken

Lovelyjoolz wrote: »

From that, your employee will take home about £10,500 and you will pay over their PAYE and NIC to the HMRC every month, totalling around £1,500 a year. In addition to that, you'll pay around £700 in Employers NIC to the HMRC.

The tax and NIC of the employee is included in their gross pay, so not worth thinking how much that will be - and the tax will depend on their personal circumstances any way.

If the employee is working in the employer's premises, there is also the extra cost of metered water, possibly heating and items like tea/coffee which many employers provide. This probably isn't much and so depends on how precise you want to be.

Savvy_Sue

Russe11 wrote: »

NEST (national employment savings trust? or somthing like that)comes in next year, which I thought ment that all employers must contribute on a sliding scale, and all employees must make a contribution out of their wage. As a employer you can choose to offer what ever scheme you like, but NEST has been set up as a easy option.

Russe11 wrote: »

I should say compulsory to sign up to a scheme, NEST is already up and running

It's almost certainly NEST I'm thinking of. ATM any employer with over 5 employees has to offer staff a pension scheme of some kind. Staff don't have to join, employers don't have to contribute. But I was aware that that's changing.

And I haven't looked into the mechanics of it as we already offer a Stakeholder Pension scheme which I encourage staff to join because our employer makes a 2% contribution even if we don't.

However I keep telling those responsible for budgets that I think we're going to have to increase that employer 2% contribution to 3%!

patman99

Can employees opt out of NEST?.

Savvy_Sue

patman99 wrote: »

Can employees opt out of NEST?.

I think the theory is not, however I'm not sure how it's going to work.

ATM, our stakeholder pension provider requires us to check ID when someone signs up, and they have to fill in a simple form and sign it. Honestly, it's not rocket science. However getting people to actually provide their ID and sign the forms seems to take forever. Even though it's a no-brainer: if you fill these forms in employer will pay 2% into your pension scheme.

Plus atm we don't invite people to join until they've passed probation, if we have to do it from day one we're going to have quite a few NESTs set up and cancelled within a few months!