The Autumn Budget on 28 October 2026 confirmed that the National Living Wage will rise by 3.9% to £13.21 an hour from 1 April 2027. For employees, it is a welcome pay rise. For small business owners, it is another reason to look closely at what each new hire really costs.
The hourly rate is only the start. Once you add employer National Insurance, pension contributions, holiday, recruitment, equipment and management time, the true cost of an employee is far higher than their salary. This guide breaks down the numbers for 2027 and shows when outsourcing can be the smarter option.
The New Wage Rates From April 2027
| Age group | Hourly rate now | From 1 April 2027 |
|---|---|---|
| 21 and over (National Living Wage) | £12.71 | £13.21 |
| 18 to 20 | £10.85 | £11.27 |
| 16 to 17 | £8.00 | £8.31 |
| Apprentices | £8.00 | £8.31 |
The rise affects more than minimum-wage roles. When the lowest rate goes up, businesses often need to lift pay for staff just above it too, to keep differences between roles fair. That knock-on effect can push up the whole wage bill.
What Makes Up the True Cost of an Employee?
A salary is what an employee sees. The business pays a great deal more.
1. Employer National Insurance
For the 2026/27 tax year, employers generally pay National Insurance contributions at 15% on employee earnings above the annual secondary threshold of £5,000.
For example, an employee earning £30,000 annually would generate approximately £3,750 in employer National Insurance contributions before any available relief.
Eligible employers can claim the Employment Allowance, which reduces their annual employer National Insurance liability by up to £10,500 for 2026/27.
However, eligibility conditions apply. For example, a company with only one director who is the sole employee liable for employer National Insurance generally cannot claim the allowance.
Employers should confirm the applicable thresholds and eligibility rules when calculating their employment costs for 2027/28.
2. Pension Contributions
Under workplace pension auto-enrolment, employers generally contribute a minimum of 3% of an eligible employee’s qualifying earnings.
For the 2026/27 tax year, the qualifying earnings band is £6,240 to £50,270 annually.
For example, an employee earning £30,000 would typically generate a minimum employer pension contribution of £712.80 per year, assuming contributions are calculated using qualifying earnings.
Some employers calculate pension contributions using different pensionable pay definitions, which may result in higher contributions.
Businesses should confirm the applicable pension thresholds and contribution rules before preparing employment budgets for 2027/28.
3. Paid Holiday
Most full-time employees working five days a week are legally entitled to 5.6 weeks of paid annual leave, equivalent to 28 days per year. Bank holidays may be included within this entitlement.
Although employers pay employees throughout the year, annual leave reduces the number of hours available for productive work.
For example, an employee working 37.5 hours per week would typically have approximately 1,740 working hours available annually after deducting 5.6 weeks of statutory holiday, before accounting for sickness, training or other absences.
If the business requires temporary cover during annual leave, this may create additional staffing costs.
4. Sickness and absence
Statutory Sick Pay, time lost to illness and cover for absences all add to the bill, and they are hard to budget for.
5. Recruitment
Advertising, time spent sifting CVs and interviewing, and agency fees all add up. Recruitment agencies commonly charge a fee based on a percentage of the first year’s salary, and if the hire does not work out, you pay that cost again.
6. Equipment, software and space
Every employee needs a laptop, software licences, a phone and somewhere to work, whether that is a desk in your office or support for working from home.
7. Training and management time
New starters take time to reach full productivity. Someone has to train them, check their work and manage them day to day, and that someone is often the business owner.
The Numbers: Two Example Hires in 2027
Here are two common roles, worked out using the April 2027 wage rate and today’s National Insurance and pension thresholds. Thresholds for 2027/28 may change, so treat these as illustrations.
| Cost | Full-time role on National Living Wage | Admin or bookkeeping assistant on £30,000 |
|---|---|---|
| Annual salary | £25,760 (37.5 hours at £13.21) | £30,000 |
| Employer National Insurance (15% above £5,000) | £3,114 | £3,750 |
| Employer pension (3% of qualifying earnings) | £586 | £713 |
| Core employment cost | £29,460 | £34,463 |
| Productive hours a year (after 5.6 weeks’ holiday) | 1,740 | 1,740 |
| Cost per productive hour | £16.93 | £19.81 |
These calculations illustrate the core employment costs using an assumed 37.5-hour working week, the April 2027 National Living Wage and the employer National Insurance and pension thresholds applicable in 2026/27.
The figures exclude any Employment Allowance that an eligible business may claim.
They also exclude recruitment expenses, equipment, software licences, office space, training, sick pay and management time.
As a result, the total cost of employing someone can be significantly higher than their annual salary, particularly during the first year.
Businesses should also consider how effectively an employee’s available working hours will be utilised. Where workloads are inconsistent or do not require a full-time role, outsourcing may provide a more flexible alternative.
Note: These figures are illustrative. Actual employment costs will depend on the tax year, employee circumstances, pension arrangements and applicable employer reliefs.
Where Outsourcing Changes the Maths
Outsourcing offers an alternative to employing additional permanent staff. Instead of committing to a fixed annual salary and associated employment costs, businesses can arrange services based on their operational requirements.
Depending on the service agreement, outsourcing providers may manage recruitment, training, equipment, staff supervision and absence cover.
This can reduce administrative responsibilities and provide greater flexibility when workloads fluctuate.
However, businesses should compare the total cost of outsourcing with the cost of employing someone directly, including service fees, management requirements and any additional charges.
That makes the biggest difference in four situations:
- You need part of a role, not a whole one. If you need 15 hours of bookkeeping or customer support a week, a full-time hire wastes money and a part-time hire can be hard to find and keep.
- The workload goes up and down. Seasonal peaks, product launches and year ends are easier to handle when support can scale without hiring or redundancies.
- You need a specialist skill. Accounting, web development and digital marketing are expensive to hire for full time, but easy to access through a team that already has the expertise.
- You cannot afford gaps. An outsourced team covers holidays and sickness, so work continues without you scrambling for cover.
We compare the two approaches in more detail in 3 Employees vs an Outsourcing Team, and our article on what admin tasks really cost your business shows how much owner time those jobs absorb.
Roles Small Businesses Most Often Outsource Instead of Hiring
These are the functions where the cost gap tends to be largest:
- Bookkeeping, payroll and accounts: regular, rules-based work that is becoming more demanding with Making Tax Digital and, from 2029, mandatory e-invoicing. See our outsourced accounting services.
- Customer support: inboxes, live chat and phone lines that need cover throughout the week. See our customer support services.
- Marketing and social media: consistent content and campaigns without a full-time marketing salary. See our marketing services.
- Website development and maintenance: specialist skills you may only need for a few hours a month. See our website development services.
If you are not sure where to begin, our guide on what to outsource first walks through the 10 tasks small businesses most often hand off.
When Hiring Still Makes Sense
Outsourcing is not always the answer. Hiring directly is usually better when:
- The role is central to what customers buy from you
- The work needs someone physically on site every day
- You need a person to build long-term relationships with key clients
- The workload is steady, full time and expected to stay that way
Many growing businesses use both: a small core team in-house, supported by outsourced specialists for everything else. If you do decide to hire, outsourced recruitment support can help you find the right person faster and reduce the risk of a costly mis-hire. Our article on outstaffing vs outsourcing explains another flexible option.
Other April 2027 Changes Employers Should Know
The National Living Wage increase is not the only development employers should prepare for.
Changes to the reporting and taxation of benefits in kind are expected to increase the importance of accurate payroll processing and suitable payroll software.
Employers should review the implementation timetable for mandatory payrolling of benefits, including company cars, fuel and medical benefits, and monitor HMRC guidance on the applicable reporting requirements.
National Insurance thresholds and other payroll-related figures should also be checked for the relevant tax year before preparing employment budgets.
For small businesses managing increasingly complex payroll obligations, outsourcing payroll may help reduce administrative workloads and improve reporting consistency.
How Legacy Outsourcing Can Help
Legacy Outsourcing gives UK businesses access to skilled accounting, customer support, marketing, web development and recruitment professionals, without the fixed costs of employing them. With our UK base in Didcot and a dedicated delivery team, we work as an extension of your business and scale with you.
If you are weighing up a new hire ahead of April 2027, contact our team for a free comparison of what the role would cost in-house versus outsourced.
Frequently Asked Questions
What is the National Living Wage from April 2027?
The National Living Wage for workers aged 21 and over rises to £13.21 an hour from 1 April 2027, an increase of 3.9%.
How much does it really cost to employ someone in the UK?
The true cost of employing someone includes more than their salary. Employers must consider National Insurance contributions, workplace pension contributions, paid holiday, recruitment, equipment, training and management time.
For example, using the assumptions in this article, a full-time employee earning approximately £25,760 annually could cost around £29,460 in salary, employer National Insurance and minimum pension contributions before any available Employment Allowance.
Is outsourcing cheaper than hiring?
Often, yes, especially when you need part of a role, specialist skills or flexible capacity. You pay for the work you need, and the provider covers recruitment, equipment, holiday and management. For steady, full-time, customer-facing roles, hiring may still be better value.
Can small employers reduce employer National Insurance?
Eligible businesses can claim the Employment Allowance, which reduces their annual employer National Insurance liability by up to £10,500 under the 2026/27 rules.
However, eligibility conditions apply, including restrictions affecting certain single-director companies.
What other employer changes start in April 2027?
Alongside the National Living Wage increase, employers should prepare for changes to payroll reporting and the taxation of benefits in kind.
Businesses should monitor HMRC announcements for confirmed implementation dates and applicable National Insurance thresholds.
Sources
Figures are illustrations based on the April 2027 wage rates and 2026/27 National Insurance and pension thresholds. Check current rates before making hiring decisions.
