What Does a First Employee Really Cost a UK Tradesperson?

Your first employee will cost more than their wage. A full-time labourer aged 22 or over on the National Living Wage costs a UK trade business about £27,000 in the 2026/27 tax year, before insurance. That is £26,437 in wages and about £606 in pension. Employer National Insurance adds nothing if you claim the Employment Allowance, and about £3,216 if you can’t. Spread over the hours they actually spend on site, that labourer costs you roughly £14.57 an hour, not £12.71.

The figures below run to 5 April 2027. The Budget on 28 October 2026 may change some of them from April, so check the rates again before the new tax year. This example is illustrative: one labourer, 40 hours a week, no overtime and no sickness. Your own numbers will differ, but the lines on the bill won’t.

A year of a labourer’s wages, line by line

Start with the wage. The National Living Wage is the legal minimum hourly rate for workers aged 21 and over. It has been £12.71 since 1 April 2026, set by the government in the National Minimum Wage (Amendment) Regulations 2026 under the National Minimum Wage Act 1998. Forty hours a week for 52 weeks is 2,080 paid hours. The year then looks like this.

The employer National Insurance rate and threshold come from HMRC’s rates and thresholds for employers 2026 to 2027. The secondary threshold is £96 a week, £417 a month or £5,000 a year. Weekly and monthly payrolls round slightly differently, so treat £3,216 as the figure.

A younger hire changes the sums. An 18 to 20-year-old earns at least £10.85 an hour, so the same year is £22,568. Employer National Insurance is nil for under-21s on pay up to £50,270. Anyone under 22 also falls outside automatic pension enrolment, though they can ask to join.

Holiday, and the hours left to bill

Holiday is already inside the wage line. A worker on a five-day week is entitled to 28 days of paid leave, and you can count bank holidays within it, according to GOV.UK’s holiday guidance. On these figures, you pay £2,847.04 for days when nobody is on site. So the labourer works 1,856 hours a year, not 2,080. Divide the totals by those hours and you get £14.57 an hour with the Employment Allowance, or £16.30 without it.

The Employment Allowance, and who can’t claim it

The Employment Allowance is an HMRC relief that cuts an employer’s National Insurance bill by up to £10,500 a year. It rests on section 1 of the National Insurance Contributions Act 2014. It is optional, and nothing happens until you claim it. You say “Yes” in the Employment Allowance field of your Employment Payment Summary, which your payroll software sends to HMRC. You then claim it again every tax year.

On a bill of about £3,216 for each full-time labourer, £10,500 covers roughly three of them. So for most small trade businesses, the first employee carries no employer National Insurance at all. Since April 2025 there’s no upper limit on the size of your National Insurance bill for claiming it.

The catch is for limited companies. GOV.UK says: “If your company has only one director, they must not be the only employee liable for secondary Class 1 National Insurance.” So if you’re the sole director, pay yourself a salary above £96 a week and nobody else is on the payroll, your company can’t claim.

Take on a labourer who earns over £96 a week and the director is no longer the only one. Read with that wording, the company can then claim the allowance against both. GOV.UK gives no worked example, so confirm it with your accountant before your first full payroll. A sole trader isn’t a company, so the director rule doesn’t apply. If you run several connected companies, only one of them can claim.

The workplace pension starts on day one

Automatic enrolment is a legal duty under the Pensions Act 2008, and The Pensions Regulator enforces it. You must put workers into a workplace pension if they are aged between 22 and State Pension age, earn at least £10,000 a year and normally work in the UK. A full-time labourer on £12.71 an hour passes all three tests.

You pay at least 3% of their earnings between £6,240 and £50,270, according to GOV.UK. With the worker’s own share, the total reaches the 8% minimum. On £26,436.80, your 3% comes to £605.90 a year.

The duties begin on the day your first member of staff starts work. You then have five months to send The Pensions Regulator your declaration of compliance, or you may be fined. Contributions have to reach the scheme by the 22nd of the following month. So choose a scheme before the start date, not after the first payslip.

Insurance and sick pay

Employers’ liability insurance covers you if an employee is injured or made ill by the work. It’s compulsory under the Employers’ Liability (Compulsory Insurance) Act 1969, which the Health and Safety Executive enforces. You need at least £5 million of cover from an authorised insurer from the first day, under GOV.UK’s employer rules. You can be fined £2,500 for every day without it, and £1,000 for not displaying the certificate where staff can see it.

There’s no official premium to quote. The price depends on your trade, headcount and claims record, so get quotes before you advertise the job. Employing only close family can be exempt. HSE’s leaflet HSE40 notes that this exemption doesn’t apply to a family business run as a limited company.

Statutory Sick Pay is the legal minimum an employer pays a worker who is off ill. Since 6 April 2026 it is due from the first day of sickness. The rate is £123.25 a week or 80% of average weekly earnings, whichever is lower. For this labourer that’s £123.25, on top of a week’s lost work. It isn’t in the total above. Our guide to the Employment Rights Act for small crews covers that change and the other new rights.

Before your first employee’s first payday

The paperwork comes before the wage, and most of it has a fixed order.

1. Check the right to work before they start, using GOV.UK’s employer check. The penalty for employing someone without it is up to £60,000 per worker.
2. Register as an employer with HMRC before the first payday, but not more than two months before it.
3. Put employers’ liability insurance in place from the start date and display the certificate.
4. Choose a workplace pension scheme and enrol the worker from their first day.
5. Claim the Employment Allowance on your first Employment Payment Summary of the tax year.

If the work is too patchy for a full-time wage, the other route is a labour-only subcontractor. That only works if they are genuinely self-employed, and our guide to CIS since April 2026 covers how you pay them. A labourer on site also needs the right card, as our CSCS card guide explains.

What the labourer has to bring in

Back to the example. With the Employment Allowance, the labourer costs £14.57 for every hour on site, or £116.56 for an eight-hour day. That covers wages, holiday and pension, and nothing else. Insurance, a van seat, tools, sick days and your own margin all sit on top.

So the question for the job offer is simple. Over the 232 days the labourer will actually be on site, can you charge out more than £117 a day for their time? Our UK builders’ day rates guide shows how a day rate is built from real costs. If the answer is yes, with room for the insurance premium, the cost of a first employee pays for itself. If it’s only yes in a good month, the hire is a bet on your order book.