Non Wage Costs

National insurance contributions, workplace pension, liability insurance, sick pay, maternity pay & more are eligible non wage pay. Are you eligible?
  • Author: Siva
  • Last updated: August 7, 2022
  • 4 Minutes
non wage costs in small and medium business explained by Papershift

A big milestone for any growing business is when they hire their first employee. Making the mental shift from business owner to employer is a tricky one – suddenly it’s all serious. You have wages to pay every week or month and the person you hire is relying on you to put food on their table.

But the wage costs of a new member of staff aren’t the only cost a business will incur. There are also a variety of non-wage costs that the individual brings with them. 

In this article we will look at what these non-wage expenses are in details and how small and medium sized businesses can accommodate them whilst keeping their growing workforce happy.

Let’s begin.

What is a non-wage cost?

When it’s time to recruit a second pair of hands, don’t make the mistake of thinking that your only expense will be your employee’s salary. There are other costs of employment you need to consider.

A non-wage cost to a business is any fee that needs to be paid to accommodate an employee that isn’t their wage. This can be made up of training costs, tax and National Insurance fees, pensions, as well as any other benefit the employer pays.

What are the different types of non-wage costs that you might have to pay?

Aside from your employee’s salary, from which you must deduct any PAYE taxes and employee National Insurance Contributions, as an employer, you’re also responsible for:

  • Employer’s National Insurance contributions of 13.8% on any salary above the National Insurance Secondary threshold (although you may be able to reduce this using the government’s Employment Allowance). This has to be paid for all employees.
  • Auto-enrolment pension contributions. The minimum total contribution is 8% in the current tax year, with a minimum of 3% coming from the employer and the balance from the employee. It is now a legal requirement for all businesses to have a workplace pension in place for their employees.
  • Employers’ liability insurance to cover the cost of accidents that might injure or seriously harm the employees. 
  • Equipment required by the employee in order to do their job. This might be in the form of stationary, desks, computers, tools and machinery
  • Any costs of running an RTI compliant PAYE payroll system. This type of system will allow businesses to account for Income Tax and NICs deducted from employee’s pay.
  • Training and upskilling costs. These might include hiring in or outsourcing individuals or companies to get staff up to the required level.

Don’t forget about employee entitlements that cost a business money

Although businesses will be paying employees every week (or every month) they won’t actually be working every day as they’ll be entitled to:

  1. Holiday pay (including bank holidays)
  2. Sick pay
  3. Maternity/Paternity pay
  4. Adoption pay and leave
  5. Career breaks and sabbaticals (although these are often unpaid)

You’ll also need to make sure that you’ve got all the correct employment contracts, documents and HR policies and procedures in place as well as thinking about how to recruit and retain valuable employees. Many of these things can cost a business money too.

What does the law say about non-wage costs?

This depends on the non-wage cost in question. Some are covered by the law and must be paid. Businesses have no option these days but to pay:

  1. Employee National Insurance contributions 
  2. Workplace pension contributions
  3. Employee liability insurance. This has to be in place as soon as a business hires an employee
  4. Holiday pay
  5. Sick pay
  6. Maternity and paternity pay
  7. Adoption pay

Failure to pay any of the things above can lead to court cases/tribunals and fines for businesses.

Other costs are often voluntary but vital to the running of the business. These might include things liked:

  1. The costs of training a new employee or upskilling a current employee.
  2. Hiring the right equipment for the employee to complete the job you are hiring them for. This might include tools, stationary, office furniture, or even electronic devices.

While none of these are mandated by law, failure to pay these types of non-wage costs can be disastrous for a business. Would you want to hire a staff member to do a new job if you aren’t going to train them how to do it or give them the necessary items to complete it?

As an employer, can I claim tax back on non-wage costs?

Again, this depends on what the cost is. 

Obviously, you can’t claim tax back on things like National Insurance contributions but things like staff training, tool and equipment purchases, office equipment, and electronic devices eat into a company’s profits and as such reduce their tax burden to HMRC.

As an employee, am I entitled to non-wage costs being paid on my behalf?

Again, this depends on the cost in question. Some non-wage costs that are mandatory for your employers to pay, are paid behind the scenes so you won’t even be aware that your employer pays them.

Others, like training costs and other benefits, are generally paid at the employer’s discretion and employees have no built-in right to receive them.

In conclusion

Scary levels of responsibility aside, taking on an employee is a great way to grow your business, bring extra skills into the company, and free up your time. But it’s easy to underestimate the costs of onboarding new staff and maintaining their employment.

We hope you have enjoyed this guide. For more informative workplace information, check out the rest of our website.

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Written by Siva

I write & describe the value & benefits delivered by Paperhift's rota planning, staff time tracking, and employee payroll management software. Especially useful for Shift Planners, Rota Managers, Team Admins, and HR Teams :-)