Hiring new staff is an exciting step for any business. It means growth, new skills, and fresh ideas. But before you start drafting that job advert, it’s crucial to know exactly how much it will cost to employ someone in the UK. Note: it’s a lot more than just their salary. In this guide, we’ll break down the full scope of costs, covering everything from salaries to recruitment expenses, pensions, and even the “hidden” overheads.
Why Understanding Employment Costs Matters
Hiring isn’t just about finding the right person; it’s about ensuring your business can afford them. Beyond the advertised salary, there are numerous additional costs: pensions, recruitment expenses, workspace setup, and even holiday pay. Without a clear understanding, these expenses can strain your finances and jeopardize the very growth you’re aiming for.
Key Considerations for Construction Companies
Construction companies face unique challenges when hiring employees. These include:
- CIS (Construction Industry Scheme): Special tax deductions for subcontractors.
- Health and Safety Compliance: Investments in safety equipment, certifications, and training.
- Insurance Requirements: Additional coverage for high-risk roles.
- Seasonal Fluctuations: Managing costs during off-peak periods or slower projects.
Breakdown of Employment Costs in Construction
1. National Insurance Contributions (NICs)
Employers must contribute 13.8% of an employee’s earnings over £175 per week. Many construction firms rely on subcontractors under the CIS, where NICs aren’t required.
Estimated Cost for Direct Employees: £4,037 annually for an average salary.
2. Pension Contributions
Auto-enrolment pensions are mandatory. Construction firms often employ workers on temporary contracts, but legal obligations for pensions kick in if they meet the eligibility criteria.
Estimated Cost: £828 annually per eligible employee.
3. Recruitment Costs
Recruiting in construction involves using specialist job boards or agencies. Agency fees can be high (20–35% of the salary) due to the skilled nature of roles.
Estimated Cost: £3,500 per hire, depending on role complexity.
4. Training and Certifications
Mandatory certifications include CSCS Cards, health and safety training, and specialist courses for roles like scaffolding or operating machinery.
Estimated Cost: £1,000–£3,000 per employee annually.
5. Overhead Costs
These include PPE, tools, and site-specific expenses like portable facilities or storage for equipment.
Estimated Cost: £5,000–£8,000 annually per employee.
6. Employee Benefits and Bonuses
Travel allowances, retention bonuses, and other perks are common in construction.
Estimated Cost: £1,000–£2,000 annually, depending on workforce policies.
7. Insurance Costs
Construction companies must invest in Employers’ Liability Insurance, Public Liability Insurance, and Contractor’s All Risks Insurance.
Estimated Cost: £1,000–£3,000 annually per employee.
Salary and Benchmarking in Construction
| Role | Average Salary | NICs | Pension | Total Cost |
|---|---|---|---|---|
| General Labourer | £22,000 | £3,036 | £660 | £25,696 |
| Skilled Tradesperson | £30,000 | £4,140 | £900 | £35,040 |
| Site Manager | £45,000 | £6,210 | £1,350 | £52,560 |
Real-Life Cost Example for Construction
Here’s how the costs break down for a skilled tradesperson earning £30,000 annually:
| Expense | Annual Cost |
|---|---|
| Salary | £30,000 |
| Recruitment Costs | £3,500 |
| National Insurance | £4,140 |
| Pension Contributions | £900 |
| PPE and Equipment | £2,000 |
| Training and Certifications | £1,500 |
| Insurance | £2,000 |
| Overhead Costs | £3,000 |
| Total | £47,040 |
Managing Costs in Construction
- Hire Subcontractors: Use the CIS scheme to reduce tax and NIC obligations.
- Plan for Seasonal Downtime: Flexible contracts can help during slow periods.
- Invest in Training Grants: Apply for CITB funding to reduce costs.
Conclusion
Hiring in the construction industry involves unique costs and challenges. Between compliance requirements and overheads, expenses can reach 75–120% of the base salary. However, with strategic planning, leveraging grants, and managing seasonal fluctuations, you can hire effectively without overspending.
Ready to calculate your employee costs like a pro? Use our Employee Cost Calculator to get instant insights into your business costs!
FAQs
Do construction firms need to pay pensions for temporary workers?
Yes, construction firms are legally required to provide pension contributions for temporary workers if they meet the eligibility criteria. Under the auto-enrolment pension rules, temporary workers must be enrolled into a workplace pension scheme if:
- They are aged between 22 and the State Pension Age.
- They earn over £10,000 annually (or the equivalent in monthly/weekly pay).
- They have been employed for at least three months.
Employers must contribute a minimum of 3% of their qualifying earnings. For temporary workers on shorter contracts, there’s no obligation unless these criteria are met. It’s important for construction companies to track employment durations and earnings to remain compliant with pension laws.
What is the CIS?
The Construction Industry Scheme (CIS) is a system introduced by HMRC to regulate tax payments in the construction industry. Under CIS, contractors must deduct tax directly from payments made to subcontractors. These deductions are sent to HMRC as an advance payment towards the subcontractor’s income tax and National Insurance.
Key points about the CIS include:
- Registration: Contractors and subcontractors must register with HMRC.
- Deduction Rates: Standard rates are 20% for registered subcontractors and 30% for those not registered.
- Exceptions: Some subcontractors may qualify for gross payment status, meaning they receive full payments and handle their tax obligations directly.
Using CIS ensures compliance and simplifies tax management for construction firms while reducing the risk of underpayment penalties.
How can I reduce training costs?
Reducing training costs is critical for construction firms, as mandatory certifications and health and safety training can be expensive. Here are some strategies:
- Apply for CITB Grants: The Construction Industry Training Board (CITB) offers grants for employers to cover the costs of training apprentices and workers. For example, CITB provides funding for qualifications like NVQs and specific certifications like the CSCS card.
- Utilise Apprenticeship Schemes: Apprenticeships allow firms to hire and train workers at reduced costs. The UK government provides funding for construction apprenticeships, often covering up to 95% of training expenses for smaller businesses.
- Group Training: Enrol multiple employees in the same training course to secure bulk discounts from providers.
- Internal Mentorship Programs: Use experienced staff to mentor new hires, reducing the need for external trainers for certain skills.
By leveraging these options, construction firms can ensure compliance while keeping training costs manageable.
Are bonuses common in construction?
Yes, bonuses are increasingly common in the construction industry as companies strive to retain skilled workers and boost morale. Construction firms typically offer:
- Retention Bonuses: These are paid to skilled workers who remain with the company for a specified period, helping to reduce turnover rates in an industry known for high worker mobility.
- Performance Bonuses: Workers may receive bonuses for completing projects ahead of schedule or maintaining high safety and quality standards.
- Team Incentives: Bonuses are sometimes offered to entire teams upon the successful delivery of large or high-value projects.
Offering bonuses is a valuable strategy for attracting and retaining top talent in a competitive job market while motivating workers to meet or exceed performance expectations.
What type of insurance is mandatory?
Construction firms are legally required to have Employers’ Liability Insurance. This covers the cost of compensation if an employee is injured or becomes ill due to their work. The minimum coverage required by law is £5 million. Failure to have this insurance can result in fines of up to £2,500 per day.
Other types of insurance strongly recommended for construction firms include:
- Public Liability Insurance: Covers claims from third parties (e.g., clients or the public) for accidents, injuries, or damage caused by the business.
- Contractor’s All Risks Insurance: Protects against damage or theft of materials, tools, and equipment, including on-site and in-transit coverage.
- Professional Indemnity Insurance: Essential for construction firms providing design or consultancy services, this covers claims for errors or omissions in professional advice.
Having comprehensive insurance not only ensures legal compliance but also protects construction firms from financial risks associated with accidents, claims, or unexpected losses.