Understanding True Cost
The hourly rate on an employee's contract is not the real cost of employing them. On top of the base rate, you pay employer National Insurance, pension contributions, and accrue holiday pay - all of which add significantly to the actual cost per hour worked.
StaffBrik calculates the true cost automatically for every employee, giving you an accurate picture of your labour costs for rota planning, menu pricing, and budgeting.
What Makes Up True Cost?
True Cost = Base Rate + Employer NI + Pension + Holiday Accrual
Each component is explained below.
Base Rate
The employee's contracted hourly rate. This is the starting point for the calculation.
Employer National Insurance
As an employer, you pay National Insurance on your employees' earnings above the secondary threshold.
- Rate: 15% of earnings above the secondary threshold.
- Secondary threshold: £96 per week (£5,000 per year).
- NI categories M and H (employees under 21, or apprentices under 25): The threshold is £967 per week (£50,270 per year), meaning most young or apprentice workers attract 0% employer NI.
The higher threshold for NI categories M and H can make a significant difference. A 19-year-old barista earning £12/hr and working 25 hours a week (£300/week) would attract zero employer NI under category M, saving you roughly £1.60/hr compared to a standard-category employee on the same rate.
Auto-Enrolment Pension
If your employee is auto-enrolled into a workplace pension, you must contribute a minimum of 3% of their qualifying earnings.
- Minimum employer contribution: 3% of qualifying earnings.
- Qualifying earnings band: £120 to £967 per week (£6,240 to £50,270 per year).
- NI category M employees (under 22) are not auto-enrolled until they reach 22, though they can opt in.
Some employers contribute more than the 3% minimum. If you do, update the pension rate in StaffBrik Settings so your true cost calculations reflect reality.
Holiday Accrual
Every hour an employee works generates a holiday pay liability. This is calculated at 12.07% of the base rate.
Where does 12.07% come from?
An employee works 46.4 weeks per year (52 weeks minus 5.6 weeks of statutory holiday). Their 5.6 weeks of holiday pay must be funded from those 46.4 working weeks:
5.6 ÷ 46.4 = 12.07%
This means for every £1.00 you pay in wages, you are also accruing approximately £0.12 in holiday pay liability.
Worked Example
Let's look at a real-world example for a hospitality business.
Employee: Line cook, age 28, standard NI category, auto-enrolled in pension. Base rate: £12.00/hr Typical week: 30 hours
| Component | Calculation | Per Hour |
|---|---|---|
| Base rate | - | £12.00 |
| Employer NI | 15% of (£360 - £96) = £39.60/week ÷ 30 hrs | £1.32 |
| Pension (3%) | 3% of (£360 - £120) = £7.20/week ÷ 30 hrs | £0.24 |
| Holiday accrual | 12.07% of £12.00 | £1.45 |
| True cost | £15.01 |
That £12.00/hr employee actually costs you £15.01/hr - a 25% uplift. If you are pricing your menu, setting labour budgets, or comparing job applicants based on the contract rate alone, you are underestimating your costs by a quarter.
What This Means at Scale
For that same line cook working 30 hours a week, 48 weeks a year (allowing for their own holiday):
| Metric | Contract Rate Only | True Cost |
|---|---|---|
| Weekly cost | £360.00 | £450.30 |
| Annual cost | £17,280.00 | £21,614.40 |
| Difference | £4,334.40 |
Across a team of 10, that is over £43,000 per year in costs that do not appear on any payslip but absolutely appear on your P&L.
Where True Cost Appears in StaffBrik
True cost figures are used throughout StaffBrik:
- Rota costing - when you build a rota, shift costs are based on the true cost, not just the base rate.
- Employee profiles - each employee's profile shows their true cost per hour alongside their base rate.
- Cost Calculator - the standalone calculator lets you model true costs for different scenarios.
- Reports - the Employee Cost Report shows true cost breakdowns across your team.
Why This Matters for Hospitality
Hospitality businesses typically run on labour costs of 25-35% of revenue. If you are underestimating those costs by 20-25% because you are only looking at base rates, your actual labour percentage could be several points higher than you think.
Understanding true cost helps you:
- Price your menu accurately - know the real labour cost behind each dish or drink.
- Set realistic budgets - plan for the costs you will actually incur.
- Make informed hiring decisions - compare the true cost of a senior hire vs two junior hires.
- Evaluate pay rises properly - a £1/hr pay rise does not cost £1/hr when you factor in the NI and pension uplift.