Can I Afford to Hire Another Employee? How to Work Out the Real Cost

The real cost is more than salary

A £30,000 salary does not cost you £30,000. Once you add employer National Insurance (13.8% on earnings above the threshold), workplace pension contributions (minimum 3%), recruitment costs, equipment, software licences, and training, the true cost is typically 1.3 to 1.5 times the base salary. That £30,000 hire actually costs £39,000 to £45,000 per year.

The cashflow question

Even if the hire will eventually generate more revenue than they cost, you are paying their salary from day one while the revenue they bring may take weeks or months to materialise. For a business paying monthly in arrears, the first salary payment is due in roughly 30 days. But a new salesperson might not close their first deal for 60 to 90 days.

This cash timing gap is the bit that catches people out. You can afford the hire on an annual P&L basis but still struggle to fund the early months.

How to decide

Run the numbers. Calculate the fully loaded annual cost (salary times 1.4 as a rough guide). Divide by 12 for the monthly impact. Then look at your cashflow forecast. Can you absorb that monthly cost for at least 3 to 6 months before the hire starts generating revenue?

If the answer is yes, the hire is affordable. If the answer is only if everything goes perfectly, you are taking a risk. If the answer is no, you either need to wait, restructure the role (part-time, freelance, or commission-based), or find the cash elsewhere first.

How CFO Pal helps

CFO Pal shows your current monthly overhead spend, gross margin, and cashflow forecast. Before making a hiring decision, you can see exactly how much headroom you have and how long your cash reserves will sustain the additional cost. No spreadsheet modelling needed.

Related reading

- [cashflow forecasting](/glossary/what-is-cashflow-forecasting)

- [gross margin](/glossary/what-is-gross-margin)