We value your privacy

We use cookies to personalise content and ads, and to analyse our traffic. We also share information about your use of our site with Google for analytics and advertising purposes. By clicking “Accept All”, you consent to our use of cookies in accordance with our Privacy Policy. If you decline, only strictly necessary cookies will be used and ads will not be personalised.

🇬🇧 UK Employers & Employees · Free Check

Cost of a Pay Rise Calculator

100% Private — Zero data stored

Last updated: 09 September 2026 · 2026/27 UK tax year

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

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

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.

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.

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.

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.

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.

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.

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.

Related Tools & Guides

Take-Home Pay Calculator →Salary Comparison Tool →Net to Gross Calculator →Tax Code Checker →