Taking on your first hire is an exciting time and a promising sign that your business is on the up.

Then you take a minute to do the sums and realise that hiring someone is a lot more expensive than it looks. Fear not – we’ve made a note of all the expenses you can expect, so you don’t have a panic-induced nightmare about missing anything out.

According to Reed, it costs between £3,000-£30,000 to hire an employee, depending on the sector your business is in, how senior your staff member is and how you hire them. Let’s delve a little deeper into those costs.

Most employees will need to be put onto auto-enrolment. They must:

• Earn at least £10,000 per year (that equates to around £833 a month or £192 a week)

If they earn between £520 and £833 a month, then they have a right to opt in. At the time of writing, the employer contribution is a minimum of 3%, the employee contribution is a minimum of 5%, meaning a minimum 8% contribution on earnings.

In the 2026/27 tax year, employers pay 15% on secondary class 1 National Insurance as a direct business cost, separate from employee National Insurance. This applies to the wages of employees over 21 who earn over £5,000 per year (£417 per month).

Employment Allowance can come into play, reducing your class 1 National Insurance liability by up to £10,500 per year. You must have at least one employee whose earnings go over the secondary class 1 National Insurance threshold.

Claim through your payroll software or HMRC’s PAYE tools. In the software, go to your Employer Payment Summary (EPS) settings and set the Employment Allowance indicator to ‘Yes’, then submit your EPS to HMRC.

Employers’ liability insurance

Now that you’re taking on an employee, you need Employers’ liability insurance. This will cover you should your staff member become injured or ill because of the workplace or the work that they do for you. The cover needs to be at least £5 million but most insurers offer £10 million as standard. The fine is £2,500 for every day that you don’t have the cover, and it needs to be ready from the day you become an employer. Don’t risk it!

Once you’ve got the insurance, display your certificate where employees can see it, be that in the workplace or a company intranet. You’ll also need to fork it over to an inspector should they ask to see it. Failure to get in line with the measures could set you back another £1,000 in fines. Ouch.

You won’t need it if you’re employing s family member of someone from outside England, Scotland or Wales.

Payroll and HR software

It’s up to you whether you want to hire an HR person (in-house or external) or plump for HR software. For your first employee, HR software could be a better shout, as long as you’re clued-up on employment law.

Payroll software will come in handy, though. This will keep you right on payroll obligations including tax and pension deductions, as well as managing leave and generating payslips.

“With a new employee came HR costs, said Jess Morgan, CEO of Carnsight Communications, when she hired her first paid intern. “I had a subscription to a company to help with that – and also payroll services.”

Employee entitlement

On top of salary, pension and National Insurance, your employee is entitled to these statutory requirements:

• Annual leave: full-time employees can take up to 5.6 weeks a year (28 days)
• Statutory Sick Pay: employees get up to £123.25 a week of sick pay for up to 28 weeks from the first full day of sickness
• Maternity leave: up to 52 weeks
• Paternity leave: up to 2 weeks

What they need to do their job

Of course, your new employee will need certain essentials to do their job. This could be a computer set-up, software, an entry fob, uniform or something else entirely.

“I bought a new desk and chair as well as a computer and mouse [for my hire],” said Morgan. “I also paid for a phone allowance to ensure she was able to take and respond to work calls and check emails if out and about for a meeting.”

Morgan advises you to remember workplace expenses, for things like stationery and tea and coffee: “Not big ones but definitely things to account for,” she told .

Travel costs might crop here, and we don’t mean for commuting. Say your new employee works in sales, they may need a travel allowance to meet clients and go to conferences.

When you’re thinking about training, you’re likely to be considering their induction training, which is probably going to be done by you.

As the new hire advances in their role, consider training software or sending them on a course to deepen their knowledge and expertise. It doesn’t end with skills-based training, oh no – your employee may need more general training around workplace issues such as maintaining a safe workplace set-up and laws around bullying at work.

“The expenses that caught me out were harder to put a number on,” said Nishi Patel, founder of N-accounting. You’ll soon become aware that in your employee’s early days, you’re paying in time.

He acknowledges that, as a small business owner, your time is the most valuable resource you have, and a new starter needs a lot of it. This could be showing them your systems, explaining how you like things done, checking their work and answering questions. This all comes out of the hours you would otherwise spend serving clients, winning new business or running the company.

“In the early weeks you can easily end up less productive than before you hired, not more,” he told . “It takes months before the investment pays back and they are saving you more time than they take up. That cost never appears on a payslip, but it is very real, and most owners underestimate it.”

Attrition is a real kicker – in fact, it’s one of the biggest risks you take with hiring.

Patel said that, in his experience, only about one in two first hires work out. Sometimes the role isn’t what they expected, sometimes the fit isn’t right, and sometimes they leave once they’ve gained experience.

When that happens, you are back to square one: advertising, interviewing and training all over again. In practice you should plan to recruit and train twice, which doubles the time cost mentioned above.

“My advice to anyone making their first hire is to build that into the plan from the start, write down your processes before the person joins so training is quicker the second time round, and make good use of the probation period,” he said.

Allowances and perks

With your first hires, you might want to offer perks and allowances to reel them in, and it may prove to be an enormous success. As you grow, you might want to reconsider these on a cost-per-head basis to see if it’s still affordable.