Insights

Young people often have an immense amount to offer an organisation and there can be many strategic benefits to recruiting a younger workforce. In addition to often smaller salaries there are now additional financial advantages; these became effective in April 2015 when the government introduced new legislation which removed an employer’s liability to pay Class 1 employers’ national insurance contributions (NICs) for certain workers under the age of 25.

With effect from 6^th April 2015, no employers’ NICs will be payable on salaries paid to employees aged below 21, or to employees aged below 25 who are in an apprenticeship. For both these groups, employers’ NICs must still be paid however on earnings above the upper earnings limit (UEL).

What are the new NIC rates?

From 6^th April 2015, the Class 1 NIC rate was reduced to 0% for relevant employees who have earnings above the current ST (Statutory Threshold) level but not more than the UST (Upper Secondary Threshold). The rate which previously applied was 13.8% of earnings.

• The ST level is currently £153 per week, or £633 per month;
• The UST level is currently £813 per week, or £3,523.75 per month.

This change only affects employers’ NICs on salaries and does not apply to Class 1A NICs, so if the employee receives taxable benefits that attract Class 1A NICs, such as private health insurance, the employer will still be liable to pay Class 1A NICs on behalf of the employee.

Relevant employees will continue to pay employee’s NICs on their wages as normal, and both employers’ and employee’s NICs will be due on any wages above the UEL.

New NIC coding system for younger workers

Seven new NIC category letters have been introduced to code relevant employees according to the level of employers’ NICs payable. If you are employing young people, you will be responsible for correctly classifying the coding to be applied.

The 7 categories are:

M - not contracted-out standard rate contributions;

Z - not contracted-out deferred rate contributions;

Y - mariners not contracted-out standard rate contributions;

P - mariners not contracted-out deferred rate contributions;

V - mariners contracted-out salary related contributions;

I - contracted-out salary related standard rate contributions;

K - contracted-out salary related deferred rate contributions.

Codes V, I and K are being removed because ‘contracted-out’ status in relation to salary-related occupational pension schemes is no longer accepted.

In line with legislation introduced from 2012, all employers must provide a pension scheme for employees and make contributions according to a specified scale, effective from their allocated ‘staging date’ (known as pensions auto enrolment).

We have blogged about this in the past and if you do not yet know the staging date for your business it is important to find out in advance to give yourself time to plan – find out more.

What to tell your employees

This is change only affects employers, but you may wish to notify employees who will see a change in their NIC category codes on their payslips. Other than that, employees won’t see a reduction in their NICs and will continue to pay the standard rate of primary Class 1 NICs through their salaries, in addition their entitlement to contributory social security benefits, including State Pension won’t be affected.

If you would like advice on payroll matters, please contact Simon Paterson by emailing sp@rjp.co.uk.