One of the most common financial surprises for small business owners hiring their first employee is the gap between the salary they agreed and the total cost that hits their bank account each month. A salary of €35,000 does not cost €35,000 to the employer. In Ireland in 2026, it costs considerably more — and that gap is widening as new obligations come into force.
Understanding the true cost of employment before you make a hiring decision is not optional — it determines whether the hire is financially viable, how to price your services, and whether your business can sustain the headcount you are planning.
This guide — part of our payroll and employment series — gives a complete breakdown.
Starting Point: The Gross Salary
The gross salary is what the employee earns before any deductions. When you see a job advertised at “€35,000,” that is the gross salary. The employee will receive less than this (after PAYE, PRSI, and USC), and the employer will pay more than this (after employer PRSI and other obligations).
For our example, we will use a single employee on €35,000 gross salary, working full-time in a standard employment in 2026.
Employer PRSI
Employer Pay-Related Social Insurance (PRSI) is the main additional cost on top of the gross salary. In 2026, the employer PRSI rate for most employees is:
8.8% on weekly earnings up to €496 (approximately €25,792 annualised). 11.05% on weekly earnings above €496.
For an employee earning €35,000 per year (approximately €673 per week), the employer PRSI calculation works as follows:
The first €496 per week is charged at 8.8%. The remaining €177 per week (€673 − €496) is charged at 11.05%.
Weekly employer PRSI = (€496 × 8.8%) + (€177 × 11.05%) = €43.65 + €19.56 = €63.21 per week, or approximately €3,287 per year.
Total direct payroll cost so far: €35,000 + €3,287 = €38,287.
Employer PRSI is one of the areas where Ireland’s employment costs are notably higher than Northern Ireland and many EU comparator countries. This differential has been a consistent theme in Dundalk Chamber’s budget submissions — it creates a competitive disadvantage for border-region employers.
Auto-Enrolment Pension Contribution
Under the auto-enrolment pension scheme that came into effect in September 2025, employers must contribute 1.5% of eligible earnings for enrolled employees in the initial years (rising to 6% by year ten).
For an employee earning €35,000:
Year 1–3 employer contribution = 1.5% × €35,000 = €525 per year.
By 2035 (year ten), this becomes 6% × €35,000 = €2,100 per year.
If the employee is already in a qualifying occupational pension scheme that meets the minimum standards, the auto-enrolment contribution may not apply. But for businesses without an existing pension scheme, this is a new and growing cost.
Running total: €38,287 + €525 = €38,812 per year (in early years).
Statutory Annual Leave
Every full-time employee in Ireland is entitled to a minimum of four working weeks of paid annual leave per year. For an employee working five days per week, that is 20 days.
This is not an additional cash cost — you are paying them for days they are not working. But it is a cost in terms of productive hours. An employee earning €35,000 who takes 20 days of annual leave is being paid for 52 weeks but delivering approximately 47 weeks of work. This is the staffing overhead that needs to be factored into project planning and capacity.
Public holidays add a further 10 days of paid leave per year (9 public holidays plus the additional public holiday introduced in 2023). In total, an employee is entitled to approximately 30 days of paid leave per year — nearly six weeks — before any additional company leave entitlements are considered.
Statutory Sick Pay
Under the Sick Leave Act 2022, employees in Ireland are now entitled to statutory sick pay from their employer for a defined number of days each year. The entitlement has been phasing in since 2023:
From 2024: 5 days of statutory sick pay per year. From 2025: this increases incrementally (check the current schedule on gov.ie for the 2026 rate).
Statutory sick pay is paid at 70% of normal daily earnings, subject to a cap of €110 per day — I cover the full details in our guide to small business sick pay obligations. The days must be certified by a medical professional.
For most small businesses, the expected cost of statutory sick pay per employee per year is modest — most employees take no or very little sick leave. But it is a genuine liability that needs to be factored in, particularly for businesses with higher-risk workforce profiles.
Employer Liability and Other Insurance
If you are employing someone, you are legally required to hold employer’s liability insurance. This covers you against claims from employees who are injured or become ill as a result of their work. The cost varies significantly by sector — a desk-based employee costs relatively little; a construction worker on site is considerably more expensive to insure.
Public liability insurance (covering third-party claims) is also essential if your employee is working on customer premises or in public.
These insurance costs are not payroll costs per se, but they are direct costs arising from the employment and must be included in your total cost of employment calculation.
Training, Equipment, and Onboarding Costs
These are often overlooked in cost projections but can be significant. Training a new employee — whether formal courses, supervised on-the-job training, or simply the time of experienced staff members used to bring someone up to speed — has a real cost. For trades businesses, tools, equipment, and safety gear may also need to be provided.
A conservative allowance for first-year onboarding costs for a typical employee is €500–€2,000 depending on the role and sector.
Summarising the True Annual Cost (Year 1)
| Cost Component | Annual Cost |
|---|---|
| Gross salary | €35,000 |
| Employer PRSI (approx.) | €3,287 |
| Auto-enrolment pension (Yr 1–3) | €525 |
| Sick pay (provision) | €300 |
| Employer liability insurance (estimate) | €400 |
| Onboarding / training (Year 1) | €1,000 |
| Total Year 1 cost | €40,512 |
That is approximately 16% more than the gross salary in Year 1, and this will grow as auto-enrolment contribution rates increase over the coming decade.
What This Means for Your Business
The purpose of this analysis is not to discourage hiring — employment creates productivity, growth, and value that far exceeds these costs for a well-run business. The purpose is to ensure that hiring decisions are made with accurate numbers.
Before hiring, your business should be able to answer:
Does the revenue generated by (or attributed to) this hire exceed the true cost of employment, with a reasonable margin? Do I have the cashflow to sustain three to six months of payroll while the new employee reaches full productivity? Have I modelled what happens if the hire doesn’t work out — including any statutory redundancy obligations if the employment lasts more than two years?
If the numbers work, hire with confidence. If they are marginal, it is worth a conversation with your accountant before you commit.
Paddy Malone FCA AITI
Paddy is the principal of Malone & Co. Chartered Accountants in Dundalk. A Fellow of Chartered Accountants Ireland and a Chartered Tax Consultant with the Irish Tax Institute, he has been advising businesses across County Louth and the North-East for over 35 years.