How do I budget for employer National Insurance?

Apply 13.8% to the portion of salary above the secondary threshold (£9,100 for 2025/26). For simplicity, many finance teams apply 13.8% to the full salary and accept the small overstatement. From April 2025, the rate increased to 15% for some employers.

Should I include contractor costs in the headcount plan?

Yes, but separate them from permanent staff. Contractors do not incur employer NI or pension costs, but their day rates are typically higher. A common approach is to show a "Permanent" and "Contingent" section within each department.

How do I model salary increases?

Apply a merit increase percentage (typically 3-5% in the UK) at the start of the financial year or on anniversary dates. Budget for promotions separately as they often involve 10-20% increases. Include a "salary true-up" line for mid-year market adjustments.

What headcount-to-revenue ratio should I target?

This varies hugely by industry. For SaaS companies, a common benchmark is £100-200k revenue per employee at scale. For professional services, it is £80-150k. The key is to track this ratio over time and ensure it improves as the business scales.

Example

Headcount Plan Example

A 100-person technology company in Cambridge with £7M revenue. The People team and Finance team collaborate on the annual headcount plan, which feeds directly into the P&L budget. This plan covers all departments with fully loaded costs including employer NI (13.8%), pension (5%), and benefits.

Example data

Financial model

Department

FTE

Avg Salary

ER NI

Pension

Total Cost

Engineering

£68k

£356k

£129k

£3,069k

Product

£62k

£68k

£25k

£589k

Sales

£55k

£137k

£50k

£1,177k

Marketing

£52k

£72k

£26k

£618k

G&A

£58k

£112k

£41k

£923k

Customer Success

£48k

£79k

£29k

£684k

Total

100

£58k

£824k

£300k

£7,060k

Engineering

Engineering is 38% of headcount and 43% of total cost, reflecting above-average salaries. The plan includes 6 new hires (4 in Q1, 2 in Q3) with a 3-month ramp.

Sales

Sales costs include base salary only. OTE (on-target earnings) with commissions is budgeted separately in the variable compensation line to separate fixed from variable costs.

Total

Total headcount cost of £7.06M represents 101% of revenue -- common for a growth-stage tech company reinvesting heavily in the team. Target is to bring this below 85% as revenue scales.

Formulas

Key formulas

fxEmployer NI = (Salary - £9,100) * 13.8%

UK employer National Insurance at 13.8% above the secondary threshold. This is a significant additional cost that many budget holders underestimate.

fxPension = Salary * 5%

Employer pension contribution at 5% of salary. The legal minimum is 3% but most competitive employers offer 5%+ to attract talent.

fxFully Loaded Cost = Salary + ER NI + Pension + Benefits

The total cost of employment is typically 20-25% above base salary in the UK. This company's average multiplier is 1.22x, reflecting NI, pension, and a small benefits allowance.

Analysis

What makes this example good

Department-level view gives budget owners visibility into their own costs

Fully loaded costs prevent the common error of budgeting salary only

Employer NI and pension broken out separately for transparency

Average salary per department enables benchmarking against market data

New hire plans with ramp periods built into the quarterly phasing

Customisation

How to adapt for your business

Add individual position rows for detailed hire-by-hire planning

Include start date and ramp period for each planned hire

Add a contractor/freelancer section with day rates

Include a salary band table for benchmarking and offer management

Add a quarterly phasing view showing when costs hit the P&L

Common variations

--Position-level plan with individual hire details and start dates
--Contractor vs permanent split for flexible workforce planning
--Multi-location plan with different salary scales by geography
--Headcount plan with attrition assumptions and backfill timing

Keep exploring

Related examples

Annual Budget Example

A 120-person B2B software company based in Manchester with £5.2M annual revenue. The business sells a subscription product to mid-market companies and is forecasting 18% growth this year. The finance team is building the annual budget for FY2026.

View example

Departmental Budget Example

A 80-person B2B SaaS company in London with £5.8M ARR. The VP Marketing is building the annual marketing budget for FY2026. The department has 10 people and a total budget of £1.2M covering team costs, paid channels, content, events, and software tools.

View example

Cost Allocation Example

A 180-person professional services firm in London with £14M revenue and four operating departments: Consulting, Advisory, Technology, and Research. Central costs (IT, HR, Finance, Facilities) totalling £1.8M per year need to be allocated to each department for true profitability analysis.

View example

FAQ

Frequently asked questions

The total cost of employing someone, including base salary, employer NI (13.8%), pension contributions (3-10%), benefits (private health, life insurance), equipment, recruitment fees, and any other employment-related costs. In the UK, expect a 20-30% uplift on base salary.

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