From 6th April 2015, if a business has an employee or subsequently recruits an employee aged under 21, Employer’s Class 1 National Insurance contributions will be zero on their pay up to £815 a week or £3,532 per month. If their pay exceeds this, the additional amount would be subject to Employer’s National Insurance at 13.8%.
For an employee with an annual salary of £15,000, this change will generate a saving to the business of £957.72 in the 2015-16 tax year. If the salary was £25,000, the saving would be £2,337.72.
However, this zero rate does not apply to Class 1A or Class 1B National Insurance due on benefits. Typically, this would be either the provision a company car or of private medical insurance where the Employer’s National Insurance rate remains at 13.8%.
It is important to be mindful that, under employment law, a candidate’s age is a ‘protected characteristic’ that must not influence the recruitment process. If another candidate can demonstrate that they have been unfairly overlooked in favour of a less expensive applicant aged under 21, they could take legal action to claim age discrimination.
The Employment Allowance is not affected. For the 2015-16 tax year, this remains up to the first £2,000 of Employer’s National Insurance contributions for most businesses.
To activate this change, you would need to use one of the new National Insurance category letters on your payroll. Although there are seven new category letters, in the vast majority of cases category M would apply.
Payroll software may not automatically make this amendment, so it is advisable to identify the staff affected and review this before the first payroll of the 2015-16 tax year is run.
The level of Employee’s National Insurance contributions is not impacted. Therefore, if the employee turns 21 during the 2015-16 tax year, their net pay would remain the same but Employer’s National Insurance contributions would commence.
If you would like any further information or would like advice on any issue relating to employment and pay, please contact us at firstname.lastname@example.org for an initial consultation.