As people are now looking to employ I thought it would be helpful to overview the general costs involved with employing someone in the UK and how you can factor that back to an hourly charge.

Some Assumptions

1. As most of my readers are within the IT industry, I've based these figures on hiring within our sector
2. For simplicity's sake, someone who is over 21 (minimum wage and the factors vary when employing someone younger).
3. The employ won't earn over £844 (around £44,000pa) to avoid needing to account for different NI values (refer to Directgov for more information)

The calculations

I've created a spreadsheet for you which calculates the hourly cost for employees on various salary levels. It should be fairly self explanatory, if it's not, leave a comment and I'll explain as necessary.

Download: Hourly_Rates_Breakdown.xls

Other costs to consider

Once employed, there are a number of other costs that haven't been factored into the spreadsheet:

Downtime

It's unlikely that your employee will be working at full capacity (if they are you should consider employing another!) so it is important factor in some downtime within your calculations.

First Year

Although the process of employment doesn't have to be too costly by using freejobsites and pre-written employment contracts, there is still an inherent cost with employing someone.

Think carefully about what you'll need to buy for the new employee -you will need to give them somewhere to work (i.e. a desk), something to use to do the work (i.e. a computer) and importantly somewhere for them to sit!

On-going

As everything in business needs to be broken down to a monetary value so here are some other things that you will need to factor into your calculations:

• Office space -apportion the employee's area of the office's rent
• Stationary -pens, paper and ink all costs
• Telephone
• Training/course fees
• Electricity
• Software and licenses
• Business insurance (if this is your first employee this is likely to increase substantially)

Conclusion

Breaking the salary down to an hourly charge should help give you confidence in being able to afford the additional resource. If you're working flat out at £50ph and finding that work isn't getting done, you can in theory employ someone at around £25,000pa and by keeping them busy still earn £55,594.66 (approximately!) yourself without needing to do any work. I'm sure you can see that by adding to your team and keeping them busy you can very quickly start growing your business.

It's also worth noting, when making a considerable investment such as employing someone, it would be wise to have a contract written specifically for your role.

Update: I've already had some great feedback on the spreadsheet courtesy of Sean Ronan from Active Pixels. He added a new table "Weekly billable hours needed to break even". This breaks the total cost of employing someone down into the weeks they can actually work. As they're unlikely to work 52 weeks a year, it works out the number of weeks based on the other information you entered. Great idea, thanks Sean.