Payroll considerations for graduate employees

We have turned the whole of September into Monahans Payroll Month rather than just sticking to National Payroll Week like everyone else.

That’s because we know that payroll issues can feel so complex that a week is not enough time to explore them all.

With a new cohort of students anxiously making their way to university in the coming weeks, it is time to think about the specific payroll considerations required for graduate employees.

Why do graduate employees carry specific payroll requirements?

The albatross around the neck of many graduates is the need to pay back their student loans.

These are charged based on the total annual salary that a graduate is making, at which point they will be made to pay nine per cent of the income earned over the threshold back to the Government.

The only exception is for those on a Postgraduate Loan plan, where only six per cent of income gets paid back.

Currently, the income thresholds for each plan type are as follows:

The level of interest changes between undergraduate and postgraduate loans, with all the undergraduate loan plans carrying a 3.2 per cent interest rate compared to the 6.2 per cent of the Postgraduate Loan.

The plan a graduate is on will largely be determined by the time they began to course and the kind of studying they conducted.

What do businesses need to know for payrolling graduate employees?

To ensure that the graduate on your team is not going to find themselves the subject of an investigation, it is worth asking them whether they have any undergraduate or postgraduate loans that will need to be repaid.

As you have a view of their payroll, you can ensure that the payments are being made correctly and raise the matter with them if you notice that there is an issue before they do.

Beyond that, it is also worth considering how a graduate may approach working hours or salary.

Some graduates may wish to keep their salaries below the threshold, and this could result in them working part-time or declining pay increases to achieve this.

It is entirely within your control whether you grant these considerations or not.

Something you should keep in mind though, is the impact of fiscal drag.

As the National Minimum Wage and National Living Wage both increase, it is now within the realm of possibility that a person working full-time on the National Living Wage would hit the threshold if theirs is a Plan 5 loan.

Even a modest amount above the National Living Wage could see those with a Plan 1 loan cross the threshold, and Plan 2 is similarly within reach for those earning slightly above that rate.

This means that even in jobs where historically repaying student loans was not a risk, employers may now need to ensure that their payroll information is accurate and that the loan repayments are being handled.

Granted, nine per cent of £396, the amount a person with a Plan 5 loan on the National Living Wage would repay annually, is not a sizeable amount, but it is above the threshold and so does need to be addressed.

Graduates are a vital part of your workforce, bringing their knowledge and expertise into your business, but they need to be payrolled appropriately.

We are here to help you navigate any challenges that may arise from handling the payroll of graduate employees.

Keep your graduate and non-graduate employees content with fully compliant payroll by speaking to our team today!

Neil Manuel