As summer nears its end, a new wave of graduates step into the job market, eager to prove their worth.

For businesses, this influx represents a golden opportunity – an injection of new energy, ideas, and ambition into their workforce.

But with this opportunity comes the challenge of managing payroll, particularly when it comes to student loan repayments.

The strategic edge of graduate recruitment

Bringing recent graduates into the fold can reinvigorate your business with fresh perspectives that can drive innovation.

Yet, behind the enthusiasm of recruitment lies a more technical hurdle – ensuring that your payroll system is prepared to handle the details that come with managing new hires who are likely carrying the burden of student and postgraduate loans.

The tangled web of loan repayment plans

Graduates enter the workforce burdened with varying levels of debt, each governed by a different repayment plan. The specifics of these plans are dictated by when and where the graduates studied, creating a complex landscape that payroll systems must navigate:

• Plan 1 – For those who started university before 1 September 2012.
• Plan 2 – Covers graduates who studied between 1 September 2012 and 31 July 2023.
• Plan 4 – Tailored for individuals funded by the Student Awards Agency Scotland.
• Plan 5 – Applies to students starting courses after 1 August 2023.

Postgraduate loans apply to those who pursue further study in advanced degrees.

The threshold trigger

Loan repayments don’t begin until a graduate’s earnings cross specific income thresholds. These thresholds are crucial benchmarks that payroll must monitor meticulously:

• Plan 1 – £24,990 per year
• Plan 2 – £27,295 per year
• Plan 4 – £31,395 per year
• Plan 5 – £25,000 per year
• Postgraduate loans – £21,000 per year

The repayment structure requires nine per cent of earnings above the threshold for most plans, and six per cent for postgraduate loans.

It’s a straightforward formula, but the execution requires precision.

The pivotal role of payroll systems

The process begins when you receive a start notice – either SL1 or PGL1 – from HM Revenue & Customs (HMRC).

This triggers the need to configure your payroll system accurately. Getting the details right ensures that your new hires trust that their financial obligations are being handled correctly.

You must set up the correct repayment plan and ensure deductions begin as soon as they should, based on the graduate’s earnings.

These deductions must continue until a stop notice (SL2 or PGL2) is issued. Any misstep can lead to either overpayment or underpayment, both of which can cause issues down the line.

Trust through accuracy

A single payroll error can unravel the confidence your recruits place in your company, leading to dissatisfaction and, potentially, intervention from HMRC.

Businesses must ensure their payroll processes are watertight from the outset. For

If you are looking for help and advice with managing your payroll for new graduate hires, our team is here to assist. Contact us today.