Payroll & Tax·7 August 2026·6 min read

The Full Cost of Employing Someone in 2026

You hire someone and agree on a gross salary of €1,500. At first, everything looks clear.

But when the first payroll is run, the numbers don't match the amount you agreed on: the employer pays more than €1,500, and the employee takes home less.

So where does the difference come from?

This article breaks the cost down step by step, with clear numbers, so you can see how payroll taxes affect your budget.

Summary

• The employer's total cost is about 1.24 times the agreed gross salary.
• For example, at €1,500 gross, the total cost is €1,853.85, while the employee's net pay is €1,140.41.
• In practice, the employee receives about 62% of what the employer pays out.
• Quick formula: gross salary × 1.2359 = total employer cost.

The three key terms

In any employment relationship, it helps to keep three amounts clearly separate.

Gross salary - the pay set in the employment contract, before any tax.

Net salary - the amount the employee actually receives, after all deductions.

Total employer cost - what the company really spends: the gross salary plus the employer's social security contributions.

Getting these three clear makes budgeting and hiring decisions much easier.

Example: a €1,500 gross salary

This example assumes an employee with no dependants who has filed their payroll tax booklet with your company.

The total gap between what the company spends and what the employee takes home is €713.44 a month.

Over a full year, that adds up to around €8,600.

Where the tax money goes

The deducted taxes go to the state budget, where they pay for the employee's social protections and for public services.

Social security contributions build the social insurance pot - the pension, plus sick pay, unemployment and maternity benefits. Both the employee (10.5%) and the employer (23.59%) pay in.

Personal income tax funds state and local services, such as education, infrastructure and healthcare.

So the employer's contributions aren't a penalty for hiring someone. They are part of the employee's own social safety net, simply handled through the company.

How the tax-free allowance affects pay

In 2026, the fixed tax-free allowance is €550 a month. This part of the salary is not charged income tax.

But this only applies if the employee has registered their payroll tax booklet with your company.

If the booklet isn't filed, income tax is charged on the full gross amount, and the employee's net pay drops by roughly €130–140 a month.

Very often, the gap between the promised and the received salary comes down to the tax booklet status, not a bookkeeping error.

Allowances for dependants raise the tax-free amount by €250 per person, which has a real effect on take-home pay.

Other costs of employing someone

On top of the direct tax costs (€1,853.85), a company has other expenses tied to employing someone.

Annual leave. Paid time off that isn't worked adds up to about 8% of the yearly pay budget.

Sick leave. The employer covers the first nine days of illness.

The workplace. Equipment, software licences, furniture and rent.

Training and development. Time and money spent helping someone learn the job and settle in.

These indirect costs usually add another 10–15% on top of the gross salary and taxes.

Simple rules for budgeting

For quick budget planning, two multipliers help:

Gross salary × 1.24 - direct employer cost (salary + social contributions).
Gross salary × 1.4 - the full cost of employment, including admin and running costs.

For example, when planning a role at €2,000 gross, budget around €2,470 for direct costs and around €2,800 in total.

Work out your own case

Your final figures depend on things like the number of dependants and the tax reliefs that apply.

Use the salary calculator → to get exact figures for gross, net and total cost in your situation.

It's set up for the 2026 tax rates.

Common budgeting mistakes

Using the gross salary as the total cost. Planning for just €1,500 while actually spending €1,854 creates an unplanned rise in expenses.

Ignoring the tax booklet status. If no one mentions filing the booklet, the employee can be unhappy on their first payday.

Agreeing on net pay without working out the gross. Promising "€1,200 after tax" means about €1,950 in total cost for the company. It's best to always agree on the gross salary.

Accounting outsourcing

This material is for information only and is not legal or tax advice. Calculations are based on the projected 2026 rates.

Māris Nelsons, ACCA

Founder of SMAIDA Solutions. 25 years in financial management across banking, fintech and international groups.

Published: 7 August 2026.