SDN’s marketing and business development associate, Phil Golding, explains how employers save on national insurance contributions when employing apprentices, and why it’s such an important employer engagement tool for your business development staff.
A little-known employer incentive…
Alongside consultancy work for SDN, I run a social enterprise called SupplyTrain that supplies free, impartial training and apprenticeship advice to small businesses. When talking to employers that contact us about the financial case for employing apprentices, I’m always amazed at how few employers know that there is no national insurance (N.I.) contribution for apprentices under the age of 25.
I appreciate N.I. contributions sound like the dullest apprenticeship incentive known to mankind, and they are perhaps the most difficult to explain, but they can also be the biggest saver for the employer. In fact, this incentive often saves non-levy payers well in excess of their 10% contribution and eases the financial burden for levy-payers too.
Not only that, the saving encourages the employer to pay the apprentice more… the more they pay, the more they save. What’s not to like? So, if your business development and marketing teams are not talking to employers about their N.I. contributions when employing apprentices – now is the time to start.
What are employer National Insurance contributions?
You probably know that as an employee you pay national insurance contributions, because you see it listed next to ‘tax’ on your pay packet each month. But did you know that your employer has to pay a similar amount for employing you too?
In fact, for every employee that an employer is going to pay over £8,424 a year to, they must pay an ‘employer contribution’ towards the national insurance costs. This is not a small amount either, it’s 13.8% of every salary over £8,424!
So what does this mean in practice?
As an example…
A business employs a 19-year-old to work in their hotel. They pay the 19-year-old the minimum wage for their age group (£5.90) and put them on a 40-hour week contract.
Over the course of the year the business will not only pay the 19-year-old £12,272 in salary, but an additional £531.02 in employer N.I. contributions. That’s a significant additional amount.
Yet, there’s an exemption for apprentices under 25 years of age
However, when a business, of any size, employs an apprentice under the age of 25, the taxman does not charge that employer their national insurance contribution.
Using the same example above…
If the employer took on that 19-year-old as a Level 2 Hospitality Team Member apprentice – they would have saved £531.02 in employer N.I. over the year.
Of course, the employer has to pay a 10% contribution, but in this example that is a maximum of £500 – so, as you can see, the employer has actually saved more in N.I. contributions than they will pay in training costs. Not bad, hey?
There’s more… tell employers how they can use N.I. savings to attract top talent to their organisation
One of the biggest frustrations amongst the businesses I talk to is that they can’t attract a high volume of quality apprentice candidates to the role they have on offer. If your business development teams can explain this saving to employers, they realise that they can afford to offer higher wages, which in turn gives them a greater choice of candidate.
As an example…
A legal firm wants to ‘grow their own’ conveyancing technician. They see there is a Level 4 Conveyancing Technician Apprenticeship and find a training provider to partner with before advertising the role.
They work out how much the apprenticeship will cost them to run. They come to the decision that they can afford wages of £18,750, knowing that they will also pay a whopping employer N.I. cost of £1,425.
Once the provider explains that there are no employer N.I. contributions, they use this saving to increase the wages on offer to £20,000 and actually come in under budget.
This increase in wage, gives them a higher number of applicants to choose from and improves the loyalty and motivation of the apprentice, as they understand that their employer is truly investing financially in them and their career.
Employer N.I. calculator
To work out how much a business will save in employer N.I. contributions when employing an apprentice under the age of 25 – use SupplyTrain’s Employer NI Calculator. Enter the apprentice’s annual salary and see the N.I. contributions the employer would be due to pay if they weren’t an apprentice. You should see it’s a substantial amount – even for apprentices on age related minimum wage.
You can then use this figure to see if the saving is greater than the employer’s 10% non-levy contribution. To do this, find the apprenticeship standard/framework you want to deliver and work out the annual 10% contribution, by using the ‘typical duration’ as a guide to divide the total sum into a 12-month cycle.
When you have an annual 10% figure and an annual N.I. saving, you can better advise employers on their financial commitment. This, in turn, will increase trust between you and the employer, and improve satisfaction rates in your overall apprenticeship service.
Further, bespoke support
SDN’s team of associates can support your organisation with the end-to-end delivery of apprenticeships, whether that’s supporting your business development teams, trainers and assessors or helping you establish an end-point assessment offer.
Let us know your ambitions to improve, adapt or grow your apprenticeship provision and we will provide you with a suitable package of support. Email firstname.lastname@example.org
The government’s employer N.I. page