From 1 April 2025, the National Minimum Wage (NMW) will increase by 6.7 per cent to £12.21 per hour, resulting in rising employment costs for businesses.
If you employ graduates, higher earnings can trigger student loan repayments; this is something you must be aware of when managing your payroll.
Graduates begin to repay their student loans when their income exceeds a specific threshold, depending on the type of loan they received. The current repayment rate is nine per cent on any income above the following thresholds:
- Plan 1 – £24,990 per year
- Plan 2 – £27,295 per year
- Plan 4 – £31,395 per year
- Plan 5 – £25,000 per year
- Postgraduate Loans – £21,000 per year (six per cent repayment rate)
Although the responsibility for repaying the loan lies with employees, you have an obligation as the employer to accurately calculate the student loan repayments.
Combined with Income Tax and National Insurance contributions, those who earn above the threshold can face an effective tax rate of up to 37 per cent.
Many affected graduates may not realise that wage increases, and overtime for example, could push them over the repayment threshold and so affect their take home pay.
Consequently, you should be prepared to answer any questions that your employees might have on this topic.
Student loan repayments: supporting your employees
As an employer, you can play a proactive role in reducing confusion amongst your workforce, and ensuring your existing payroll processes are set up to seamlessly accommodate legislative changes.
- Educate your workforce – Help employees to understand how overtime impacts their earnings and how this could trigger student loan repayments.
- Provide reassurance – Clearly explain to employees how and why deductions were made, preventing any confusion or negative reactions.
- Review overtime policies – Assess how extra hours affect payroll and employee earnings.
If you are looking for advice on payroll management, tax planning, or handling student loan repayments, our specialist team is here to help.
Contact us today to discuss your payroll requirements, and to ensure your business stays ahead of these changes.
