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Calculating Salary

Have you been thinking about employing a member of staff? 

Perhaps it's your first time. Maybe you have been a sole trader until now but the work keeps on coming and you need the extra help.

Or maybe you're a seasoned employer considering creating a new role within your business.

Whatever your circumstances, there is a lot to consider. You need to take your time to consider the true cost to the business.


Firstly, there is their salary. No doubt you want to be paying your staff a fair wage for the work they are doing. After all, if they can do the same job for much more elsewhere, they may not remain loyal for long.

For the purpose of the blog, we will use a £28,000 salary as an example.


Next, you need to consider your National Insurance contribution. At the time of writing that is 15.05% of their salary over earnings of £758.01 per month (please check here for the most up to date information https://www.gov.uk/national-insurance-rates-letters).

£28,000 – (12 x £758.01) – 15.05% = £2,845.03

You also need to offer them a workplace pension. If they opt in that’s a 3% contribution for earnings over £520 per month. (please check here for the most up to date information https://www.gov.uk/workplace-pensions/what-you-your-employer-and-the-government-pay)

£28,000 – (12 x £520) x 3% = £652.80



So for a very basic calculation, you’re already at £31,497.83.

Time off

Holiday

Now consider their time off each year. Firstly there are planned absences such as holidays. You have to give as a minimum 28 days holiday (based on full-time employment). That is usually 20 days plus bank holidays, but for working out holiday based on your circumstances you can check here https://www.gov.uk/holiday-entitlement-rights.

Sickness



Don't forget, if they're off sick you still need to pay them but they won't be generating any money for your business while they're off. 

I strongly advise that you make it clear in your employment contracts that you pay statutory sick pay. If you don't have it written in your contract you are obliged to pay full pay while the employee is absent.

For a small business, that could mean make or break.

For details on statutory sick pay and your responsibilities as an employer check here https://www.gov.uk/statutory-sick-pay.

 Maternity/Paternity/Adoption leave

Another common cost to a business that needs to be considered. You may need to hire someone else on a temporary basis in these circumstances as well as having to pay statutory maternity/paternity/adoption pay. See the latest rates here https://www.gov.uk/maternity-pay-leave/pay


Other Costs 

There are many other costs that need considering. These will vary depending on your business but they may include the following:
  • Vehicle 
  • Vehicle insurance
  • Training
  • Uniform
  • I.T
  • Tools
  • Payroll fees
  • HR fees
As you can see the costs can quickly add up. An employee on a £28,000 salary could be costing you £45,000 or more.

Knowing the true cost of an employee is important when working out your prices. An employee on a £28,000 salary could be costing you £200 a day. You need to make a profit so this information can help you work out a day rate for each employee.

For a basic salary calculation I suggest using www.thesalarycalculator.co.uk.

Together We Count have also put together a system for calculating costs of employing someone and it is available as part of our 'Business in a Box' subscription.

If you would like to know more information about this please get in touch:





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