BUSINESSES SAVE ON NATIONAL INSURANCE CONTRIBUTIONS WITH APPRENTICESHIPS

When asked about the benefits of apprenticeships, employers typically say they are a way to acquire new talent and train a workforce. However, did you know that there are also financial advantages for employers who use apprenticeships to recruit or train staff?

One of the lesser-broadcast benefits of apprenticeships is that businesses are exempt from paying National Insurance (NI) contributions for apprentices under the age of 25. 

Many businesses will have started to reconsider taking on new staff after Chancellor Rachel Reeves announced the increase in employer National Insurance (NI) at the Autumn Budget. The increase from 13.8% to 15% took effect at the start of April. Many firms will already be feeling the resulting pinch in their staffing budgets, and the apprenticeship NI exemption is an opportunity to reduce this expense.

Employers can implement this savings opportunity by hiring apprentices under the age of 25 to fill some of their vacancies. The exemption also applies when employers use apprenticeships to upskill existing staff within the same age bracket.

NI exemption explained

Apprenticeship funding rules stipulate that employers are not required to pay Class 1 National Insurance contributions for apprentices under the age of 25 if they earn below the upper secondary threshold. This is currently £50,270 per year or £967 per week. 

This exemption applies only to the contributions paid by employers. Apprentices themselves will still need to pay their own National Insurance contributions based on their earnings. 

Typical saving

This simple calculation illustrates the significant savings businesses can achieve by employing an apprentice under the age of 25. The calculation is worked out on a salary of £20,000:

• Apprentice annual salary: £20,000 
• Employer’s NI rate: 15%
• NI contributions without exemption: £3000 

For an employee not on an apprenticeship, the employer would pay £3000 in NI contributions. But when employing an apprentice under 25, the employer saves this entire amount. That’s no small amount, and for businesses taking on more than one apprentice, the savings can add up substantially.

Other financial benefits of apprenticeships 

The National Insurance exemption is only one of many benefits available to employers. Here are some other financial benefits:

• Training cost savings: Large businesses can use their levy funds to pay for apprenticeship training, while smaller employers can access government co-investment to cover up to 95% of training costs. In many cases, even that 5% cost can be covered through an apprenticeship levy transfer. If a company has fewer than 50 employees and hires an apprentice aged 16 to 18, it is not required to make the 5% contribution.
• Hiring incentives: Additional £1000 grants are paid for employing apprentices aged 16-18 or those aged 19-24 with an Education, Health and Care (EHC) plan. These funds should be used to support or provide resources that the apprentice needs to progress in their role and throughout their apprenticeship.

Other benefits

Of course, there are many other benefits to using apprenticeships for recruiting and developing staff. Apprenticeships provide businesses with an opportunity to grow their skills capital, ensuring staff have relevant and universally recognised industry skills. They also work as excellent staff development pathways through an organisation, underpinning progression from entry-level positions to management roles. Apprenticeships are proven to boost productivity, decrease organisational risk, and increase customer satisfaction.

Employing apprentices or upskilling existing staff through apprenticeships also indicates that a business is committed to supporting professional development. This boosts staff loyalty, reduces turnover, and also enhances the corporate reputation among stakeholders, customers, and the broader community. 

Start making savings

If you’re interested in learning how your business can make the most of employing apprentices and saving on NI whilst developing valuable skills to support company growth, request a call with our employer brokerage support team.