If you were a founder making your first hire at £35,000 a year back in early 2024, the true cost to your business was around £38,800 once you added the tax you pay as an employer and a basic pension contribution.

Make the same hire today, and the true cost is closer to £40,400. And that's before you set aside money for sick pay, which is now your responsibility from the very first day someone calls in ill - with no way to claim any of it back from the government.

The individual tax and wage changes behind this have been covered everywhere. What's harder to see is how they all add up at the same time, and how that's already starting to change the way UK founders hire.

Here's what's actually changed, what it costs you, and what the data suggests other founders are already doing about it.

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Each of these on its own is manageable. The reason it feels harder right now is that all four have landed within roughly twelve months of each other.

Change one: the tax employers pay on salaries went up. Employer National Insurance is charged on top of an employee's salary and paid by you, not them. The rate rose from 13.8% to 15% in April 2025. At the same time, the salary level at which you start paying it dropped from £9,100 a year to £5,000. Higher rate, bigger slice of every salary.

Change two: sick pay rules were rewritten in your employee's favour. Statutory Sick Pay (SSP) is the legal minimum employers must pay staff who are off sick. From 6 April 2026, you pay it from day one of any sickness (there used to be a three-day waiting period), part-time and lower-paid staff who didn't qualify before now do, and the calculation has changed for lower earners. The government's own estimate is that this adds about £450 million a year to employer costs across the UK economy. You can't claim any of it back from HMRC. A new enforcement body called the Fair Work Agency opened on 7 April 2026 with the power to investigate employers and chase unpaid sick pay directly.

Change three: the minimum wage went up again. The National Living Wage (the legal minimum hourly rate for workers aged 21 and over) rose to £12.71 an hour on 1 April 2026, up 4.1%. A full-time worker on this rate now costs about £24,785 in salary alone.

Change four: tax thresholds are frozen until 2031. The tax-free allowance and the higher-rate tax threshold haven't moved in years and won't until 2031. As wages rise with inflation, more of your employees' pay (and your own) drifts into higher tax bands without any rate actually changing. It's a tax rise, just not one anyone has to vote for.

One important detail most coverage skips. There's a relief called the Employment Allowance that lets eligible businesses knock up to £10,500 a year off their Employer NI bill. It used to be £5,000 and doubled in 2025. The £100,000 eligibility cap that excluded larger small businesses was also removed. The government estimates that around one million of the smallest UK employers will pay the same or less in NI than they did before all this happened. So if you have one or two employees on modest salaries, the allowance largely cancels out the NI rise. The squeeze tends to start somewhere between your fourth and tenth full-time hire. The rest of this piece is about what happens after that point.

Example A: your first hire on a £35,000 salary. Salary £35,000. Employer NI at 15% on the £30,000 above the £5,000 threshold: £4,500. Basic pension contribution at 3%: about £900. True cost: roughly £40,400 a year. If you're a sole director and can claim the Employment Allowance, that £4,500 of NI gets wiped out, bringing the cost to about £35,900 - for now.

Example B: a team of five averaging £40,000 each. Total salaries £200,000. Employer NI on the slice above the threshold: £26,250. Pension: about £5,250. The Employment Allowance covers £10,500 of the NI. True total cost: roughly £221,000 - about 10.5% on top of the salaries themselves. Compared to the same team in 2024, you're paying somewhere between £8,000 and £10,000 more a year for the same people.

These are rough examples - your numbers will depend on age categories, pension scheme, and benefits. But the direction holds. The National Institute of Economic and Social Research, a UK research body, estimates that recent changes have raised the real cost of hiring an entry-level worker by about 7%.

They're hiring less. Recruitment firm Robert Walters found in late 2025 that 31% of UK businesses had pulled back on hiring plans, 40% had brought in a hiring freeze, and 52% were delaying pay rises. UK unemployment is at a four-year high of 5.1%, and the Chartered Institute of Personnel and Development doesn't expect a meaningful rebound in 2026.

They're hiring abroad instead. A growing option is what's called an Employer of Record, or EOR - a company like Deel, Remote, or Oyster that legally employs someone in another country on your behalf. You manage the work; they handle local payroll and compliance. The global EOR market reached around $4.7 billion in 2025 and is growing 6.5% a year. Two things push UK founders toward this: the Skilled Worker visa now requires a salary of at least £41,700, which has priced about 40% of small businesses out of sponsoring foreign staff directly; and EOR hires in lower-cost countries can cut total employment costs significantly versus a UK hire on the same role.

They're automating instead of hiring. A British Chambers of Commerce study found 54% of UK small and medium-sized businesses now use AI tools - more than double the 25% reported in 2024. One survey of UK executives found 65% planned to reduce headcount before the end of 2026, with AI cited as a major reason. The roles affected first are exactly the ones a small company would have hired for two years ago: junior admin, customer support, basic content production.

None of these shifts is caused entirely by the tax and sick pay changes. But the cost increases sit on top of trends already in motion, and speed them up.

If you haven't made your first hire yet: Your 2024 napkin numbers are now off by roughly 4–7% on the true cost per employee, before sick pay. Redo them. Then ask honestly whether your first role really needs to be a UK-based, full-time, permanent employee - or whether a contractor, a part-time hire, or someone employed abroad through an EOR would actually fit the job better. The right answer is often still a UK full-time hire. But it should be a real choice, not a default.

If you already have a team: Look again at your 12-month hiring plan against the new numbers. If you're VC-backed, this affects your runway and your next milestone - any model built on 2023 or 2024 employment costs is meaningfully out of date. If you're bootstrapped, it affects when you can responsibly add another person. Make sure you're claiming the full Employment Allowance. From April 2026, things like flu jabs, eye tests, and home-working equipment can be reimbursed through payroll without triggering tax - small lever, but worth pulling.

UK governments of every stripe have said they want Britain to be a startup nation. The cost of your first employee is one of the clearest signals founders get about whether that's actually true.

Right now the signal is mixed. The smallest employers are largely protected by the Employment Allowance. But anyone trying to grow past that point runs into a stack of changes that compound in ways the headline numbers don't capture. Founders are already responding - hiring later, hiring abroad, automating sooner. Whether that's a healthy adaptation or the quiet hollowing-out of the UK's small-employer base is the real question worth watching.

✅ Know a founder building a team in the UK right now? Forward this their way. The earlier they see how the costs have shifted, the better the hiring decisions they'll make this year.

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