Written by Ben Fearn
Published on March 12, 2015

The new tax year is fast approaching, and one of the more interesting changes the Government has announced will happen from 6th April 2015 onwards is the abolition of Employers National Insurance contributions for any employee under the age of 21. A fairly generous change since it will cost Her Majesty’s Government around half a billion pounds a year!

Currently every employer with employees over 16 years of age pay National Insurance (NI) contributions across to the Exchequer if the worker earns more than the Primary Threshold (PT) which is currently £153 a week. From the beginning of the 2015-16 tax year they won’t have to pay anything unless the employee earns over an Upper Secondary Threshold of £813 a week (the same as the Upper Earnings Limit).

So why has this been done, and what does it mean for jobs and for payroll? The Government says the main reason is to encourage employment and hence growth in the economy. It will be an encouraging factor for employers considering taking on extra labour since there is a noticeable cost saving. If an employee under 21 years of age is on a salary of £12000 a year the employer could save £500. If the salary was higher, say £16000, the saving could double to £1000.

However the cost saving in NI contributions is balanced with the cost of upgrading payroll software to make the change operate correctly. This, it is estimated, has cost a total of three quarters of a million pounds for all the employers affected. The reason for the update and expense is that there now seven new NI category letters - M, Z, Y, P, V, I and K! Helpfully, however, the rest of the National Insurance regime will stay the same and three of the new letters will disappear after the first year since they apply to contracting out – which is being abolished.

So, mostly all good news! Less cost to employers, more jobs, a boost to the economy. Well, not quite. As with all new Government policies experts have mulled the possible outcomes and have warned of perhaps unforeseen issues. They warn that as soon as employees turn 21 they might find themselves out of a job as employers simply recruit younger, cheaper to employ, replacements. Also, will 21 year olds feel disadvantaged when they interview for a position alongside slightly younger applicants? Hopefully not; age discrimination law appeals equally to the young as the old.

Whatever the potential pitfalls, the legislation change has been widely welcomed and it will be interesting to watch its effect on the jobs market for young people, an area that has been recently plagued by high unemployment and a lack of opportunity.