How much do employee benefits cost? Learn what a full UK benefits package costs, what drives the price, and where salary sacrifice saves you money.
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UK employers spend at least 16% of salary on mandatory costs alone: employer national insurance, pension contributions, and statutory sick pay. A competitive voluntary package adds another 5–10%. Salary sacrifice schemes can offset some of that through NI savings. What you offer matters, but how you structure it matters just as much.
The frustrating thing about budgeting for employee benefits is that there isn't a standard price list. You can look at ten different providers and still not have a clear number to plan around. That's because the cost depends on your workforce. Your team's average age, location, headcount, the benefits you choose, and the level of cover you set all shape the final price.
This guide covers what drives the cost of each benefit, the split between mandatory and discretionary spend, how to set a benefits budget, and where tax efficiencies bring the cost down.
As an FCA-regulated broker and benefits platform, Kota helps scaling UK companies source, manage, and renew benefits like private medical insurance, workplace pensions, group life insurance, and health cash plans.
That gives us direct visibility into what employers pay, what drives cost, and how premiums move at renewal. Those real-world insights are what this guide is built on.
Many employer-paid benefits are actuarially priced, meaning the premium reflects the risk profile of your specific workforce. That's why every quote is bespoke. But there is a logic to how that risk is calculated, and five variables drive the cost of almost every benefit you offer.
Understanding what moves your costs is one half of the picture. The other is the layer of spend every UK employer carries by law, regardless of what they choose to invest on top.
Before you can think about the benefits you want to offer, there is a layer of spend that is already decided. UK employers have five statutory obligations that apply regardless of size, sector, or what else they choose to provide:
Here’s how they break down:
That floor is also moving. Employers now fund sick pay from the first day of absence rather than the fourth, pay a higher rate of payroll tax on every salary, and meet a minimum wage that rises each April.
Each of these represents an increase in the fixed cost of employing people in the UK. Discretionary benefits that keep people healthier and in work have a clearer financial case as a result.
Each benefit has its own cost logic. Here's what moves the price across the main ones.
Private medical insurance is the most variable benefit in cost terms, and the most in-demand. According to Drewberry's 2026 Benchmarking Report, 31.5% of UK employers now offer group health insurance, up from 28.2% the year before. Age is the primary cost driver.
The older your team on average, the higher the premium. Location is the next significant factor, with London-based teams typically paying more than regional equivalents.
Beyond age and location, the choices you make within the policy shape the cost further. A guided hospital list costs less than an open one, capping outpatient cover brings the cost down further, and adding mental health cover adds it back.
The cost lever for workplace pension is the employer contribution rate you set above the legal minimum of 3%. The Drewberry Benchmarking Report found 5% to be the most common rate, offered by 26.2% of UK employers, with 22.4% still contributing only the statutory minimum.
What makes this lever different from the others is scale. The difference between the minimum and the market rate may feel modest per employee, but it compounds across a growing team. It is also the benefits decision most visible to your people, which means the cost and the signal it sends are rarely separable.
The two primary cost levers for group income protection are the benefit level (what percentage of salary the policy covers) and the deferred period (how long an employee must be off before the policy pays out). The Drewberry report puts the common benefit level between 50% and 59% of salary.
A longer deferral brings the premium down meaningfully, which is often how employers manage cost without reducing the benefit significantly. Workforce demographics and sector also play a role, with occupations carrying higher illness or injury risk priced accordingly.
Group life cost depends primarily on the benefit multiple, with 2x salary as the most common level, followed by 3x, according to the Drewberry report.
Workforce age and scheme size are the other two variables, with larger schemes typically attracting better rates. Group life is one of the more cost-efficient benefits available. Employers pay relatively little for a benefit employees value highly, with premiums treated as a business expense.
A health cash plan cost structure can be simpler than PMI. A fixed monthly premium per employee, set by the benefit level you choose, determines what employees can claim annually. Unlike PMI, premiums aren't heavily age-weighted, making cost more predictable as your team grows.
Dental cover is either included within a health cash plan or offered as a standalone policy. As a standalone, the cost is driven by the level of treatment covered. Routine check-ups and hygienist visits sit at the lower end, while cover that extends to major restorative work costs more. Premiums are fixed per employee and relatively predictable, with less age sensitivity than PMI.
EAP is one of the lowest-cost benefits in per-head terms, priced on a flat per-employee rate regardless of age or health profile.
The main cost variable is service level. A basic phone and online counselling service costs less than one that includes face-to-face sessions or a higher number of covered sessions per year. EAPs are also commonly bundled within group life or PMI policies.
The size of your team affects what you can access, what you pay per head, and how providers price the risk. Smaller schemes carry less actuarial pooling, which typically means higher per-employee premiums on group risk benefits.
Some products have minimum headcount requirements before you can access them. As your headcount grows, so does your negotiating position, your access to a broader range of benefits, and the rates you can secure.
The table below maps what a typical package looks like at different sizes. Use it as a starting point, not as a cost guarantee. The real numbers come from a benefits review.
If your team is under 10 people, the dash in the comprehensive column is about access. Most group income protection products require a minimum of three employees to underwrite as a group scheme.
The competitive tier is still within reach, but you'll pay more per head for PMI than a larger employer running the same policy. That's because at that size you're priced closer to individual than group rates, a gap that narrows as your headcount grows.
Volume discounts on PMI start to move meaningfully as your team scales. The same package costs a smaller share of your payroll at a larger headcount, even when nothing else changes.
While the table provides directional percentages, you still need to turn them into an actual budget. That requires understanding where the market sits relative to your business.
The most useful place to start is a baseline. Before adding a single discretionary benefit, you are already committed to a statutory floor.
That floor sits at roughly 16% of base salary for most UK employers when you combine employer National Insurance at 15% on earnings above £5,000, auto-enrolment minimum of 3% of qualifying earnings, and Day-One SSP obligation that came into force in April 2026.
Once you know your floor, budgeting for the discretionary layer becomes a different conversation. Instead of asking “what can we afford?”, you are asking “what are we adding above what we already pay?” For a typical scaling business, the answer tends to look something like this:
Take a team of 50 with an average salary of £42,000. A mid-tier regional private medical insurance scheme runs to around £50 per employee per month. A 2x salary death-in-service benefit adds roughly 0.3% of salary, or £126 per person per year.
A health cash plan at £5 per employee per month and an employee assistance programme at around £15 per year add basic wellbeing support. Add an employer pension contribution at 5% of qualifying earnings, and the total comes to approximately £2,589 per employee per year, around 6% of average salary.
Two variables will move that number. A London workforce pays materially more for PMI than a regional team. An older average age pushes up both medical and life cover premiums. Six per cent is a reasonable anchor for a regional business at this size, but your team profile determines where you land.
Several of the most common benefits receive favourable tax treatment that reduces what you actually pay, either through employer NI savings, corporation tax relief, or both. The cost levers below are worth understanding before you finalise your budget.
When employees contribute through salary sacrifice rather than from post-NI pay, both employer and employee can save on NI.
You no longer pay 15% employer NI on the sacrificed amount. For someone contributing 5% of qualifying earnings on a £42,000 salary, that saves you around £268 per employee per year. Across a 50-person team, that is more than £13,000 annually, recovered without adding a single new benefit to your package.
From 6 April 2029, though, only the first £2,000 of employee pension contributions made through salary sacrifice each tax year will remain exempt from National Insurance. Contributions above that threshold will attract employer and employee NI, although employer pension contributions that aren't made through salary sacrifice remain exempt.
Group life insurance premiums qualify for corporation tax relief as a business expense, so your after-tax cost is lower than the headline premium. For your people, the cover generates no benefit-in-kind.
That means no P11D, income tax, or National Insurance on the value of what they receive. And because the policy pays out through a trust rather than directly into an estate, there is no inheritance tax on the lump sum for the beneficiary either. A tax-efficient benefit on both sides of the employment relationship.
Zero-emission vehicles sit outside the Optional Remuneration Arrangement rules. That means EV schemes retain their full tax and National Insurance relief. The benefit-in-kind rate for zero-emission cars is 4% for 2026/27, rising gradually to 9% by 2029/30.
Because salary sacrifice reduces an employee's contractual salary, employers pay National Insurance on the lower amount. An employee sacrificing £600 a month towards an electric vehicle lease reduces their salary by £7,200 a year, saving the employer around £1,080 in National Insurance at the current 15% rate.
Combined with the favourable benefit-in-kind treatment for zero-emission vehicles, that makes EV salary sacrifice one of the most tax-efficient benefits available to UK employers.
The Cycle to Work scheme works in much the same way as pension salary sacrifice. Because employees give up part of their salary in exchange for the benefit, you pay employer National Insurance on the lower salary. There is no statutory spending cap, and e-bikes qualify too.
While many employers still set an internal limit, higher-value purchases are possible, particularly through specialist providers that handle the consumer credit requirements.
Salary sacrifice works best when used across benefits that continue to qualify for National Insurance savings, such as pensions, electric vehicles, and Cycle to Work. Individually, the savings may seem modest. Combined across your workforce, they can meaningfully reduce the overall cost of your benefits package while increasing the value your people receive.
Most employers think about the cost of benefits in terms of premiums. But premiums are only part of the picture. Every renewal, enrolment, employee query, and spreadsheet update carries a cost too, especially when you're juggling multiple providers.
Drewberry's 2026 Employee Benefits Benchmarking Report found that 43.3% of UK employers spend between 6 and 20 hours each month on benefits administration. With 61.7% managing between three and seven providers, and 46.6% reporting at least one data error from manual processes in the past year, the true cost of employee benefits extends well beyond the premiums themselves.
That's the problem Kota is built to solve. With Kota, you can:
Book a free benefits review and we'll show you how Kota works for your team.
UK employers must provide the following:
There isn't a standard price for group private medical insurance. Premiums are based on factors like your team's average age, where employees are based, the size of your workforce, and the level of cover you choose. Once you know those variables, an insurer or benefits broker can provide a quote tailored to your business.
Yes. HMRC treats employer-paid PMI as a benefit in kind, which means employees pay income tax on the value of the premium through their tax code. As the employer, you pay Class 1A National Insurance on the premium at 15%.
Some do, but it depends on how they're provided. Benefits offered through salary sacrifice, such as pensions, electric vehicle schemes, and Cycle to Work, can reduce employer and employee National Insurance because they lower the employee's contractual salary.
Benefits provided on top of salary, like private medical insurance, don't offer the same savings and instead attract Class 1A National Insurance.
Yes. While some benefits, like private medical insurance, can be more expensive for smaller teams, many others are relatively affordable. Employee assistance programmes, group life insurance, and salary sacrifice schemes are all accessible options that can deliver real value without a large upfront cost. The key is to start with the benefits your people value most and build your package as your business grows.
Senior benefits consultant at Kota, bringing 25+ years of experience working in employee insurance benefits.
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