From 1 April 2025, the National Minimum Wage will rise to £12.21 per hour (an increase of 6.7 per cent), meaning rising employment costs for businesses.
For graduates, higher earnings can trigger student loan repayments, a factor you should consider when managing your payroll.
Graduates start repaying their student loans when their income exceeds specific thresholds, depending on the loan type.
The repayment rate is nine per cent on any income above these 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 loans lies with employees, you have an obligation as the employer to accurately calculate the 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 graduates may not realise this, and overtime could trigger loan deductions and increase the amount of tax paid.
As such, you must be prepared to answer any questions that arise from your employees on this topic.
What employers can do to support employees
You can play a proactive role in reducing confusion and ensuring your payroll processes handle these changes effectively.
- Educate your workforce – Help employees understand how overtime impacts their earnings and may 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 team is here to help.
Contact us today to ensure your business stays ahead of these changes.
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