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🇬🇧 UK Employers & Employees · Free Check

Cost of a Pay Rise Calculator

See the massive gap between what a pay rise costs an employer and what the employee actually takes home.

✓Employer NI Factor✓Auto-Enrolment Pensions✓Tax & Student Loans✓Free — no sign-up

Salary Details

Employer's Total Spend

Gross Pay Rise:£0.00
Total Cost to Employer:£0.00

Employee's Net Gain

Gross Pay Rise:£0.00
Net Money In Pocket:£0.00
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Why Does a Pay Rise Cost the Employer More?

When an employee asks for a £5,000 raise, they often think the company only has to find £5,000. In reality, the UK tax system places a heavy "friction" on salary increases.

To give you a gross raise of £5,000, the company must also pay Employer National Insurance (13.8%) and mandatory Employer Pension Contributions (3%) on top of that money. This means a £5k raise actually costs the company nearly £6,000. You can see the full breakdown of your own salary using our Take-Home Pay Calculator.

Why Does the Employee Receive So Little?

Because your tax-free Personal Allowance (£12,570) is already being used by your base salary, every single penny of a pay rise is taxed at your highest "marginal rate".

  • Basic Rate Taxpayers: Lose 20% to Tax, 8% to NI, and 5% to Pension. (Keeping 67p of every £1).
  • Higher Rate Taxpayers: Lose 40% to Tax, 2% to NI, and 5% to Pension. (Keeping 53p of every £1).
  • With a Student Loan: Add an extra 9% tax onto the above figures.

The 60% Tax Trap — When a Pay Rise Costs Too Much

If a pay rise pushes your salary over £100,000, you fall into the notorious 60% tax trap.

For every £2 you earn over £100k, HMRC takes away £1 of your tax-free Personal Allowance. This creates an effective income tax rate of 60%. When you add 2% NI and 5% Pension, you are keeping just 33p of every £1 your employer gives you. It is often much smarter to funnel this pay rise directly into a pension or a Salary Sacrifice EV.

Salary Sacrifice — A Cheaper Way to Give a Bonus?

Because of the huge wastage shown in the calculator above (often 40% to 50% lost to HMRC), many employers are turning to Salary Sacrifice schemes.

Instead of giving a £5,000 cash raise, the employer can put £5,000 directly into the employee's pension. This completely bypasses Employee Income Tax, Employee NI, and crucially, saves the employer 13.8% in Employer NI.

Salary Increases

Frequently asked questions

Why does a pay rise cost the employer more than I receive?
When your employer gives you a £1,000 pay rise, they don't just pay £1,000. They also have to pay a 13.8% Employer National Insurance tax on that £1,000 directly to HMRC, plus a mandatory 3% Employer Pension contribution. So a £1,000 gross raise actually costs the company nearly £1,170.
Why do I lose so much of my pay rise to tax?
Because your Personal Allowance is already used up by your base salary, every single penny of a pay rise is taxed at your 'marginal rate'. Depending on your bracket, you will lose a minimum of 20% to Income Tax, plus Employee NI, plus your own 5% pension contribution, plus potentially 9% for a student loan.
How much Employer NI does a company pay on a salary increase?
In the UK, employers currently pay 13.8% National Insurance on all employee earnings above the secondary threshold (£9,100 per year). Because your base salary is likely already above this threshold, the entire pay rise is subject to that 13.8% tax.
Does a pay rise affect my auto-enrolment pension?
Yes. Unless you have opted out, 5% of your pay rise will automatically be deducted and put into your pension. At the same time, your employer is legally required to contribute an additional 3% of the pay rise into your pension pot.
Is there a cheaper way for an employer to give a pay rise?
One of the most tax-efficient ways to reward an employee is through a Salary Sacrifice scheme, particularly for pension contributions or electric vehicles. This avoids both Employee and Employer National Insurance entirely, stretching the money much further.
What happens if a pay rise pushes me over £100,000?
If a pay rise pushes your salary over £100,000, you enter the notorious '60% tax trap'. HMRC begins taking away your £12,570 tax-free Personal Allowance. Combine this with NI and student loans, and you could lose up to 70% of the raise to taxes.
Should I ask for a bonus instead of a pay rise?
A bonus is taxed in exactly the same way as a normal pay rise—subject to Income Tax, National Insurance, and Student Loans. The only difference is that a bonus is a one-off payment, meaning it won't permanently increase your pension contributions or your base salary for mortgage applications.
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