Reduced National Insurance Contributions for Employees Under 21

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This April sees the abolition of employer National Insurance Contributions (NICs) for employees under the age of 21.

Chancellor George Osborne announced the changes as part of a Government initiative to reduce unemployment levels amongst young people. The scheme looks set to reduce employee contributions for as many as 340,000 employers across the country, and comes as part of a wider package of measures intended to boost economic development.

The new legislation will come into effect on the 6th April 2015, and means that employers will no longer need to pay Class 1 secondary NICs for any employee under the age of 21 on earnings up to a ‘Upper Secondary Threshold’ (UST). The UST is a new earnings threshold for the 2015/16 tax year that will initially be set at the same value as the existing Upper Earning Limit (UEL).

The UST is expected to be set at:

  • £815.00 per week
  • £3,532.00 per month
  • £42,385.00 per year

Class 1 secondary NICs will still be payable on all earnings above the UST.

The incoming legislation also sets provision for age bands to be added and for percentage rates to be reduced in the future; however the basic structure of NIC assessment will remain as it is at present.

In order to be eligible for the NIC relief during the 2015/16 tax year your employee must satisfy the following criteria:

  • Be aged 16 – 21
  • Have zero rate of Class 1 secondary NI on earnings below the UST

This legislative change is likely to reduce annual payroll costs by anything upwards of £500 per employee, and is a move that should make the prospect of hiring a young person much more appealing for employers.

HR Solutions provides a complete Payroll Service that can help you to adjust and manage your contributions. Don’t hesitate to get in touch to find out more.

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