UK start-ups pay £35,500 to take on their first employee

31st October 2014 | News

It costs small businesses in the UK £35,500 to take on their first employee on average; less than two-thirds of which is accounted for by their take-home salary.
 
New research by the Federation of Small Businesses (FSB) and the Centre for Economics and Business Research (CEBR) has found that the first employee of a UK start-up receives an average annual salary of £21,800 – almost a third of total employment costs including the owner’s salary.
 
A further fifth of the first employee expense was accounted for by national insurance and income tax contributions, with the remainder made up of non-wage costs such as employer’s liability insurance.
 
Charles Davis, director of the CEBR, said: “Could the government do more to make it easier for the plethora of one-man bands and micro businesses to take on more employees?
 
“For the smallest businesses non-wage costs are notably higher as a share of total employment costs than larger counterparts.”
 
Average employment costs for a typical SME in 2013 totalled £189,600, of which more than 15 per cent was attributed to non-wage costs.
 
SME owners are battling an administrative burden as well as high financial costs and many small firms are forced to outsource as much of the back office leg work as possible.
 
Scott Paton, who runs a Cotswolds-based design company with his wife, has taken on his first three employees in the last 12 months and believes the decision to hire staff for their start-up should not be taken lightly.
 
“You have to think really very hard about taking that first step and bringing that additional cost and management cost into the business,” he said.
 
“It’s not simple and it’s not easy, not least of all because we are making decisions that affect other people’s lives and not just our own.
 
“The financial cost is substantial but what was most surprising, and ultimately was the biggest barrier was trying to get our heads around the management time that would go with [taking on staff].
 
“We found that the only way we could manage it was to outsource as much of the back office as possible.”
 
The CEBR found that employment costs per worker fell as businesses grew; owing to the nature of some one-off costs including workplace insurance and the administrative tasks being shared across a bigger number of workers.