True Cost to Employ Someone on £20,000

What is the true cost of a £20,000 salary to a UK employer?

For 2025-26, a £20,000 salary costs a small UK employer about £20,413 per year, rising to £20,413 in 2026-27. That includes £2,250 in Class 1 employer NI (15% over the £5,000 secondary threshold), £413 in minimum 3% auto-enrolment pension on qualifying earnings (£6,240–£50,270), offset by £2,250 of the £10,500 Employment Allowance if eligible.

How is employer National Insurance calculated on £20,000?

HMRC Class 1 secondary (employer) NI is 15% on earnings above the £5,000 secondary threshold (both 2025-26 and 2026-27). For £20,000, that's 15% × £15,000 = £2,250 per year before any Employment Allowance offset.

Does every employer pay the Apprenticeship Levy on £20,000?

No — only employers with an annual pay bill over £3 million pay the 0.5% Apprenticeship Levy, and the first £15,000 is offset by the Levy Allowance. A small business paying one person £20,000 is well below the threshold and pays nothing. A large employer with 100+ staff on £20,000 would pay roughly £0 per employee per year.

Can Employment Allowance reduce the cost of hiring on £20,000?

Yes — eligible employers can offset up to £10,500 of Class 1 employer NI per tax year (2025-26 and 2026-27). On a £20,000 salary that offset is worth £2,250. Since 6 April 2025 there's no longer a £100,000 prior-year employer NI cap on eligibility — employers of any size can claim regardless of how much employer NI they paid the previous year. Single-director companies with no other employees on payroll, public bodies, and businesses doing over half their work in the public sector are still excluded.

What does the true cost exclude?

This calculation covers the mandatory HMRC on-costs: employer NI, minimum auto-enrolment pension, and Apprenticeship Levy. It excludes statutory sick pay, maternity/paternity pay, holiday pay (20 days + 8 bank holidays), training, equipment, recruitment agency fees, and any discretionary benefits like private medical insurance or bonuses.

Is £20,000 near the minimum wage threshold?

Yes — at 37.5 hours/week, £20,000/year works out to about £10.25/hour, which is below the 2026-27 National Living Wage of £12.71/hour for workers aged 21+ (up from £12.21/hour in 2025-26, effective 1 April 2026). Most full-time NLW-paying roles will cost at least £24,785/year in gross salary before employer on-costs.