Slash your NI bill by hiring an apprentice

Cheap labour

The biggest expense for most businesses is the cost of paying staff wages plus the 15% surcharge added by the government in the form of employers’ NI. However, the government offers various incentives to employ young people and to offer them apprenticeships. If you’re in a position to hire staff, taking on an apprentice can be very cost effective.

Lower salaries

The national minimum wage (NMW) is currently £12.71 per hour for those aged 21 or over, and is reduced to £10.85 for 18-20 year olds and £8 for under 18s. The apprentice rate is also £8 per hour but it only applies to apprentices aged under 19, or in the first year of their apprenticeship.

An apprentice can be paid £8 per hour for the first year of their apprenticeship even if they are over 21. This saves £4.71 per hour which makes them £9,796 (4.71 x 40 x 52) cheaper in the first year, based on a 40-hour work week.

0% NI

The savings continue beyond the first year due to a specific NI break for employers. There’s no employers’ NI to pay on earnings up to £50,270 per year for staff under 21, or apprentices under 25. This is a significant saving, available over several years.

Example. Acom Ltd hires Ellie as an apprentice just after her 18th birthday. Ellie is paid £8 per hour until she turns 19, and £10.85 per hour until she turns 21, at which point she is paid a salary of £27,000. The NI saving for Acom is £1,746 ([8 x 40 x 52] - 5,000 x 15%) in the first year, £2,635 ([10.85 x 40 x 52] - 5,000 x 15%) per year for the following two years and £3,300 (27,000 - 5,000 x 15%) per annum thereafter. Over, say, a five-year apprenticeship, the NI saving is a whopping £13,616 (1,746 + 2,635 + 2,635 + 3,300 + 3,300). This is based on a 40-hour working week after deducting the NI secondary threshold of £5,000.

Employees are still required to pay Class 1 NI, the 0% rate only applies to employers.

Requirements

You do need to put some effort into training the apprentice in order to meet the qualifying conditions. You will need an agreement in place which provides for the apprentice to receive sufficient training in addition to on-the-job training.

Free funding

On top of the lower wages and NI break, you can apply to the government for funding to pay for the apprenticeship training. Broadly, employers with an annual wage bill below £3m can get back 100% of the cost of training and assessing apprentices aged 16 to 24.

You may also be eligible for an additional £2,000 “apprenticeship hiring payment” for new recruits. There’s further funding for care leavers and those with an education, health and care plan.