THE TRUE COST OF HIRING: WHAT DOES IT REALLY TAKE TO EMPLOY SOMEONE?
Hiring an employee at minimum wage may seem straightforward, but the true cost of employment stretches far beyond the basic hourly rate. Business owners, especially those in gardening and trade industries, must factor in taxes, insurance, vehicle expenses, equipment, travel time, and more to ensure they not only cover their costs but also turn a profit. So, how much do you really need to charge per hour just to break even? Let’s break it down.
The Base Wage: Where It All Begins
From April 2025, the UK minimum wage stands at £12.21 per hour, equating to an annual salary of £25,396.80 for a full-time employee working 40 hours per week. But that’s just the beginning of the financial commitment for an employer.
Employer Costs Beyond Salary
Business owners are required to contribute to their employee’s National Insurance (NI), pension, and holiday pay. Here’s what that looks like:
- Employer National Insurance: 15% on earnings above £5,000 = £3,089.52 per year
- Employer Pension Contribution: 3% of total salary = £761.90 per year
- Employer’s Liability Insurance: £300–£1,000 per year, depending on industry risk
- Holiday Pay: 5.6 weeks (28 days) of paid leave, already factored into the annual wage
With these costs included, the real cost of employment (without any extras) already rises to over £30,000 per year.
Adding a Vehicle: The Cost of Getting to Work
For gardening and trade businesses, a company van or car is often necessary. A typical work vehicle comes with significant costs:
- Lease or Purchase Cost: £4,200 per year (£350 per month)
- Insurance: £1,200 per year
- Road Tax: £200 per year
- Fuel: £3,500 per year (approx. 15,000 miles driven)
- Maintenance & Repairs: £1,000 per year
- MOT & Servicing: £400 per year
Adding vehicle expenses brings the total cost of employing someone closer to £40,000 per year.
Equipment Costs: Tools of the Trade
A gardening or landscaping business requires reliable equipment. Employers often provide essential machinery, which comes with upfront and ongoing costs:
- Lawnmower: £1,000 (with 3-year lifespan = £333/year)
- Hedgecutter: £600 (with 3-year lifespan = £200/year)
- Strimmer, Blower, Hand Tools: £1,200 total (amortised = £400/year)
- Maintenance & Replacements: £500/year
Total estimated equipment cost per employee: £1,433 per year
Factoring in Travel, Loading and Unloading Time
In many service industries, time spent traveling between jobs and preparing tools and vans is not billable, yet it consumes a significant part of the workday. If an employee spends 30% of their time on travel and loading/unloading (roughly 12 hours per week), this drastically reduces the number of billable hours per year.
From a maximum of 2,080 hours per year, once you remove holiday time (224 hours), and non-billable time (30% of remaining hours), you’re left with approximately 1,302 billable hours per year.
How Much Do You Need to Charge Per Hour?
With the true costs of employment, transport, tools, and reduced billable hours, here’s what the numbers look like:
Total annual cost (including equipment):
- Without vehicle: £31,433
- With vehicle: £41,433
Break-even hourly rates:
- Without a vehicle: £24.14 per hour
- With a vehicle: £31.82 per hour
Adding a 20% profit margin:
- Without a vehicle: £28.97 per hour
- With a vehicle: £38.18 per hour
For a 30% profit margin:
- Without a vehicle: £31.39 per hour
- With a vehicle: £41.37 per hour
Is It Worth the Hassle? Potential Profit from One Employee
Let’s say you run a business where you can charge the profitable rate for most of the year. What kind of return could you expect from employing one person?
- At £38.18/hour (with vehicle) and 1,302 billable hours/year:
- Gross Income: £49,735
- Total Cost: £41,433
- Annual Profit: £8,302
- At £41.37/hour (30% margin):
- Gross Income: £53,878
- Annual Profit: £12,445
This assumes consistent work and efficient scheduling. Realistically, profits could be lower due to quiet periods, cancellations, or unexpected costs—but it offers a rough idea of what’s possible.
The Bottom Line: What Should You Charge?
For a sustainable business, an employer must charge at least £24.14 per hour just to cover the real cost of employing someone when factoring in travel, vehicle use, and tools. For a modest 20% profit margin, this figure rises to over £38 per hour if a work van is included.
Understanding these costs helps business owners set realistic rates and protect their livelihoods. Undercharging not only hurts your bottom line—it makes it impossible to grow or reinvest in your business. So, next time a customer questions your rate, remember: it’s not just about the time spent on the job—it’s everything it takes to get there and do it well.
