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Could the minimum wage increase catch graduates off guard with student loan repayments?

With the National Minimum Wage climbing to £12.21 per hour in April, businesses may face unexpected ripple effects, especially those employing graduates in non-graduate roles.  

While the pay rise is great news for workers, it brings with it a lesser-known consequence: the potential for student loan repayments to kick in due to increased earnings. 

Understanding student loan repayments 

Repayments for student loans are triggered once earnings surpass set thresholds, which depend on the loan type. Graduates typically repay nine per cent of income above these limits: 

A graduate working 36.8 hours a week at minimum wage won’t typically hit the threshold, but add just a handful of overtime hours, and repayments could begin. 

The impact on businesses 

Although the responsibility for student loan repayments falls to employees, businesses should take note.  

Many graduates may be unaware that overtime could nudge their earnings above the repayment threshold.  

The resulting deductions, combined with National Insurance and Income Tax, could create an effective tax rate of up to 37 per cent on additional income.  

This unexpected reduction in take-home pay might affect staff morale, particularly in non-graduate roles. 

Steps employers can take 

Employers have a vital role in supporting employees through these changes. Here’s how: 

A balancing act for employers 

While higher wages improve financial stability for employees, they also introduce new business considerations.  

Managing overtime, communicating potential deductions, and maintaining a happy workforce requires careful planning. 

Our team specialises in payroll and tax planning to ensure businesses stay ahead. Contact us today to see how we can support you. 

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