The abolition in 2015 will eliminate employer NIC liability for approximately 1.5 million employees aged under 21 across the country, making it cheaper to employ younger workers.
Following chancellor George Osborne announcement of plans to abolish employer National Insurance contributions (NICs) for under-21 staff earning less than £813 per week, equivalent to an annual salary of £42,285, Employment4students (E4S) spoke with HMRC National Insurance Contributions Policy Team, on what this means to jobseeking students and school-leavers.
A spokesperson from HMRC commented: “It is part of a wider package of measures being implemented by the Government – including the Youth Contract, removing the cap on student numbers at publicly funded higher education institutions in England by 2015-16 and help with apprenticeships – to ensure young people have access to the jobs and experience they need to build their careers.”
E4S speculate that these changes may lead to a variety of ways employers will be able to support young workers, including a potential increase in jobs available to young people, to opportunities for improved support and training.
HRMC continued: “The measure will benefit employers across the economy, including the public and private sectors, and throughout the UK. As estimated when the policy was announced in the Autumn Statement last December, around 340,000 employers are expected to benefit, helping to support jobs for almost 1.5 million young people currently in employment.”
Chris Eccles, Employment4students founder and managing director, commented on what impact these measures will have, stating that “these changes are focused on school leavers and current students rather than graduates, who by and large will be above the under-21 cap.
“Students and young workers can miss out on job opportunities when employers favour workers with more work experience to save on training costs. This new measure, combined with a lower minimum wage for workers aged under 21, provides a significant financial incentive for employers to hire younger workers, which will hopefully not only encourage them to take on more young people, but also invest some of the cost savings into training and development programmes.”
HMRC declined to provide further analysis on any potential increase in young employment the abolition of NIC would have, noting that “employment levels are driven by a wide range of factors such as the overall level of demand in the economy, so it is not possible to estimate exactly what the overall increase in youth employment will be as a direct result of this measure.
“However we know that it will make it considerably cheaper to employ a young person under the age of 21, thereby removing a barrier to creating jobs for such people.”
Eccles suggested that this is an opportunity for companies to create or grow a school leaver programme: “The biggest winners from this change are likely to be companies who run well paid school leaver programmes. Grant Thornton, National Grid and the National Audit Office have set up dedicated entry schemes for school leavers which offer great training and pay well. They could save around £1,500 per school leaver per year from this change which would enable them to offer more places in 2015 without spending any more than they are this year, or use the cost savings to spend more on training or offer the trainees a high salary. This is a timely boost for the growing number of companies looking to hire and train young people straight out of school rather than just focusing on hiring graduates for their entry level roles.”
Under-21 employees earning more than £42,285 per annum are considered above the Upper Earnings Limit and employer NIC will be liable as normal, however this will affect a very small minority of young workers.