One more hour or one more hire: what the marginal hour costs
An extra hour costs more than the hourly rate once overtime and employer's National Insurance are added. A one-table method shows which orders cause it and when a hire is cheaper.
The hourly rate is not the price of an hour
Most owner-managed manufacturers and wholesalers price labour from a rate: £15 an hour, so £15 an hour goes into the quote. The hour you add at the end of a busy week does not cost that. It is usually paid at overtime, it attracts employer's National Insurance, and it arrives because a particular order needed it. The rate shows what the hour costs on paper. It says nothing about which orders caused it.
What changed this April, and what sits on top of it
From 1 April 2026 the National Living Wage for workers aged 21 and over is £12.71 an hour, up from £12.21, an increase of about 4.1% (GOV.UK, National Minimum Wage and National Living Wage rates). The next step, £13.21, is already listed for April 2027. If your rate card keeps differentials above the minimum, the 50p rise is a prompt to check each band.
On top of pay sits employer's National Insurance: 15% on earnings above £5,000 a year for most employees in 2026 to 2027 (GOV.UK, rates and thresholds for employers 2026 to 2027). For an extra hour that is a flat 15% on the whole payment, premium included.
Here is what that does to one marginal hour. The figures are illustrative:
- Base rate £15.00; overtime at 1.5 times is £22.50.
- Add 15% employer's National Insurance and the hour costs £25.88, which is 73% more than the rate on the quote.
- Holiday pay, pension and recruitment are not included, so the true figure is higher.
Find where the extra hours come from
Take one month of overtime and give each hour to the order group that caused it. Illustrative figures for a small workshop:
| Order group | Extra hours | Cost at £25.88 |
|---|---|---|
| Rush orders (under 48 hours) | 40 | £1,035.20 |
| Small orders (under £250) | 25 | £647.00 |
| Standard orders | 10 | £258.80 |
| Total | 75 | £1,941.00 |
Rush and small orders carry 87% of the extra hours in this example. The average hid the story. A total overtime line says "labour is expensive"; the table says which orders are expensive to serve, and so which customers and order types need a different price or a different rule.
It also answers the hiring question. A new employee at £15.00 plus 15% employer's National Insurance costs £17.25 an hour, about £2,803 a month for 37.5 hours a week. At £25.88 an overtime hour, that is the cost of around 108 overtime hours. At 75 hours a month, overtime is still the cheaper route in this example. Above roughly 108, a hire starts to pay, before holiday pay, pension and recruitment are counted.
Check it against the next official release
You do not need to forecast wages. The Office for National Statistics publishes its next labour market bulletin on 17 November 2026 (ONS, Employment in the UK). Treat it as a prompt to rerun this table with your own payroll, not as a source of a pay figure. The method is the same each time: price the marginal hour, assign it to an order group, compare it with the cost of a fixed hire.
Tips and tricks for this week
- Pull the 10 orders with the most overtime hours from the last three months.
- Price one overtime hour from your payroll: rate, premium, employer's National Insurance, holiday pay and pension.
- Total the hours by order group, then by customer.
- For each customer whose price does not cover that cost, choose one lever: a minimum order, a rush surcharge, or a planned delivery slot.
- Compare the monthly overtime cost with a fixed hire before you advertise a role.
If you want the same split by customer and product from your own figures, try the Business Health Check. One change, one date: pick the lever, and review the table on 17 November.