How much does a £40,000 employee cost? (2026-27)

A £40,000 employee costs the employer £46,262.8 per year in the 2026-27 tax year (with minimum 3% pension). This includes £5,250 in employer NI and £1,012.8 in pension contributions — 15.7% above the gross salary. The cost per hour is £23.72.

At a glance

An employee on a £40,000 gross salary costs your business significantly more than their headline pay:

3% pension	5% pension	8% pension
Employer NI	£5,250	£5,250	£5,250
Pension	£1,012.8	£1,688	£2,700.8
Total cost	£46,262.8	£46,938	£47,950.8
Above salary	15.7%	17.3%	19.9%
Cost per hour	£23.72	£24.07	£24.59

At £40,000, this is close to the UK median salary of £34,963. The on-costs are typical for a mid-range hire.

Employer National Insurance: £5,250

Employer NI is charged at 15% on all earnings above the Secondary Threshold of £5,000:

• Earnings above threshold: £40,000 - £5,000 = £35,000
• Employer NI: £35,000 x 15% = £5,250
• Monthly employer NI: £437.5

This is an effective rate of 13.1% on the gross salary. Unlike employee NI, there is no upper earnings limit for employer NI — it's a flat 15% on everything above £5,000.

Pension auto-enrollment: £1,012.8

UK employers must auto-enroll eligible workers into a workplace pension. The minimum employer contribution is 3% of qualifying earnings.

Qualifying earnings are the portion of salary between £6,240 and £50,270:

• Qualifying earnings: £40,000 - £6,240 = £33,760
• 3% contribution: £33,760 x 3% = £1,012.8/year (£84.4/month)

At 5%, this would be £1,688/year. At 8%, it would be £2,700.8/year.

Monthly and hourly cost

Period	Salary	+ NI	+ Pension	Total cost
Annual	£40,000	£5,250	£1,012.8	£46,262.8
Monthly	£3,333.33	£437.5	£84.4	£3,855.23
Weekly	£769.23	£100.96	£19.48	£889.67

Based on 1,950 working hours per year (37.5 hours/week), the cost per hour is £23.72. This is the figure to use when pricing projects or comparing against contractor day rates.

What the employee actually receives

While you pay £46,262.8 in total, the employee's take-home pay (after income tax and employee NI) is:

• Take-home pay: £32,319.6/year (£2,693.3/month)
• Income tax: £5,486
• Employee NI: £2,194.4

The gap between what you pay (£46,262.8) and what the employee receives (£32,319.6) is £13,943.2 — you pay 43% more than the employee takes home. The difference goes to income tax, employee NI, employer NI, and pension.

See full £40,000 take-home pay breakdown

Frequently asked questions

How much does a £40,000 employee cost the employer?

With the minimum 3% pension, a £40,000 employee costs £46,262.8/year (£3,855.23/month). This is 15.7% above the gross salary.

How much employer NI do I pay on a £40,000 salary?

Employer NI on £40,000 is £5,250/year (£437.5/month). That's 15% on earnings above the £5,000 Secondary Threshold.

What is the cost per hour for a £40,000 employee?

Based on 1,950 working hours per year, the total cost per hour is £23.72. The gross salary alone works out to £20.51/hour, but employer on-costs add £3.21/hour.

Can I reduce employer costs?

Yes. Salary sacrifice arrangements reduce both the employee's tax and your employer NI. For example, pension contributions via salary sacrifice save 15% in employer NI on the sacrificed amount. You can also claim the Employment Allowance (£10,500 off employer NI) if eligible.

Where can I see the full NI breakdown?

See the detailed NI calculation for £40,000 including employee NI, employer NI, and self-employed NI comparison.