Is your payroll ready to hire a graduate?

With autumn beginning, many fresh faces will be wandering the halls of universities for the first time.

For those who have already tossed their mortarboards, they will want to bring their fresh ideas into the world of business.

While graduates can be an asset for your company, they bring with them payroll challenges that must be understood.

What are the main payroll challenges of hiring graduates?

Student loans, the albatross around the neck of graduates, may also provide troublesome for employers who are unaware of the thresholds.

Not every graduate is on the same plan and they may need to pay back the loans at different points in their careers.

For the 2026/27 tax year, the main thresholds are:

• Plan 1: Threshold is £26,900 a year (nine per cent repayment rate) for students who started before September 2012 in England and Wales or Northern Ireland.
• Plan 2: Threshold is £29,385 a year (nine per cent repayment rate) for English and Welsh students who started between September 2012 and July 2023.
• Plan 4: Threshold is £33,795 a year (nine per cent repayment rate) for Scottish students (Student Awards Agency Scotland).
• Plan 5: Threshold is £25,000 a year (nine per cent repayment rate) for English and Welsh undergraduate students starting courses from August 2023.
• Postgraduate loan: Repayments begin over earnings of £21,000.

Employers should use starter checklists, P45 information and HMRC notices to confirm whether student loan or postgraduate loan deductions are needed, or can simply check with the employee themselves to ensure that records are accurate.

The real issue manifests with the wage compression that has occurred between the legal minimum wages and the salaries earned by graduates.

While student loans were sold on the promise that only graduate wages would trigger repayments, this may no longer be the case.

The current rate of the National Living Wage (NLW) would put a full-time worker very close to the Plan 5 threshold or may even cause them to cross it.

Given that the current UK NLW is £12.71 for workers aged 21 and over, this amounts to an annual pre-tax salary of £24,784.50 for a 37.5-hour week, or £26,436.80 for a 40-hour work week.

Full-time NLW workers who work 40 hours a week will now pay back some of their student loans and some employers of low earners may not have had to process this for these job roles before.

What happens when employers make mistakes with graduate payrolling?

Your graduate employees will not be best pleased if there are mistakes with their payroll.

While they might not initially complain about not paying back student loans, the eventual steep bill they will likely receive will not be appreciated.

Your employees also run the risk of paying too much too soon and this could dampen their spirits by reducing their ability to meet the cost of living.

Beyond keeping your employees happy, payroll compliance is necessary for avoiding HMRC penalties.

HMRC will issue correction requests in the event of mistakes or wrongdoing before issuing fines that can become quite notable once interest is applied.

Your reputation will also be tarnished by making payroll mistakes, so taking chances is not worthwhile.

Our team can help you make sure student loan deductions are applied correctly, employee records are accurate and payroll remains compliant as your workforce grows.

By getting the details right at the start, you can give graduate hires a smoother onboarding experience while reducing the risk of payroll errors later.

Speak to our payroll team today to make sure your business is ready for its next graduate hire.