Understanding the Minimum Wage for Apprenticeships and Class 1 National Insurance Reduction: A Guide for Employers and Apprentices
Apprenticeships offer a cost-effective pathway for businesses to train new talent while supporting young professionals. For employers, hiring apprentices presents significant financial advantages due to minimum wage requirements and Class 1 National Insurance reductions.
- Affordable Wages for Apprentices: Apprenticeships can be a budgetfriendly hiring solution. For example, an apprentice in sectors like software development typically earns between £15,000 to £18,000 annually, while Support Desk apprentices are generally paid around £14,000 to £16,000. In some cases, an apprentice may cost as little as £13,000 per year, at the minimum wage level.
- National Insurance Savings: Employers hiring apprentices under the age of 25 benefit from a reduction in Class 1 National Insurance contributions. For an apprentice earning £15,000 per year, this translates to savings of over £2,000 annually in NI contributions. This NI reduction, set to increase to 15% from April 2025, further decreases the overall cost of training new talent, allowing employers to reinvest these savings into other training resources or incentives for apprentices.
These financial incentives not only make apprenticeships more affordable but also allow businesses to grow their talent pool efficiently while contributing to the apprentice’s development and career progression. They also help businesses build a skilled workforce, tailored to their unique needs.
However, understanding the wage structure and financial benefits for employers, such as the Class 1 National Insurance (NI) reduction, can sometimes be confusing. In this article, we’ll break down the minimum wage for apprentices and explore the Class 1 NI reduction, explaining how they impact both employers and apprentices.
Minimum Wage for Apprentices: What You Need to Know
The UK government sets a minimum wage specifically for apprentices, which is lower than the national minimum wage for other employees. This rate reflects that apprentices are in training and gaining qualifications as they work. Here’s a closer look at the details:
- Apprenticeship Minimum Wage Rate
As of April 2024, the minimum wage for apprentices is £6.40 per hour for those under 19 or over 19 and in their first year of an apprenticeship. This rate is set to give apprentices a fair wage while considering that they are also receiving structured learning and skills training, which benefits both the apprentice and the employer.
21 and over 18-20 Under 18 Apprentice
April 2024 £11.44 £8.60 £6.40 £6.40
(Current)
April 2025 £12.21 £10.00 £7.55 £7.55
- What Happens After the First Year?
After the first year, if the apprentice is 19 or older, they are entitled to the standard national minimum wage or national living wage, depending on their age. This step-up in pay reflects the skills and experience the apprentice has gained during their training period.
- Apprentice Wage and Business Investment
For employers, the apprentice wage is a manageable way to invest in a future employee’s development. However, employers are encouraged to consider paying above the minimum rate if possible, especially in highly competitive industries or regions, to attract and retain talent.
Class 1 National Insurance Reduction: A Financial Boost for Employers
One of the lesser-known financial incentives for employers who hire apprentices is the Class 1 National Insurance reduction. This incentive can provide significant savings for businesses, making it easier to bring new apprentices into the workforce.
- What is Class 1 National Insurance?
Class 1 National Insurance contributions are typically paid by both employees and employers on earnings above a certain threshold. These contributions help fund state benefits, including the NHS, pensions, and unemployment benefits.
- National Insurance Relief for Apprentices Under 25
Employers who hire apprentices under the age of 25 are eligible for a
National Insurance reduction on their wages. Specifically, employers
do not have to pay the secondary (employer) National Insurance contributions on earnings up to the Upper Secondary Threshold (UST) for apprentices under 25. The UST varies but is generally around £967 per week (50,270 a year) (as of 2024).
- How Does This Benefit Employers?
The Class 1 NI reduction means employers save money by not having to pay the 13.8% (15% from April 2025) NI rate on qualifying apprentices’ earnings. For example, if an apprentice earns £15,000 per year, the employer would save over £2,000 in National Insurance contributions. This incentive reduces the overall cost of hiring an apprentice and can make it more financially viable for businesses, especially SMEs, to invest in growing their teams through apprenticeships.
- Eligibility and Claims
To benefit from this reduction, employers simply need to ensure that they have the apprentice’s employment and training documentation in place and report the employee’s age and apprentice status to HMRC through their payroll. Most payroll software automatically applies the NI reduction when apprentices under 25 are flagged, making it straightforward for employers to take advantage of this saving.
What This Means for Employers and Apprentices
The minimum wage for apprentices, combined with the Class 1 National Insurance reduction, creates a win-win situation for both employers and apprentices:
- For Employers: These financial incentives make it more affordable to bring new talent into the organisation, allowing employers to build and develop a skilled workforce tailored to their business needs. The savings from the NI reduction can be reinvested into further training, resources, or even higher wages to make the apprenticeship more attractive.
- For Apprentices: While apprentices earn a minimum wage that reflects their in-training status, they are also gaining industry-specific skills and experience that will benefit them in their future careers. Additionally, apprentices over 19 who complete their first year benefit from wage increases in line with the standard minimum or living wage, giving them a clear path of financial progression as they learn.
Considerations for Employers: Making the Most of Apprenticeships
Here are a few tips for employers to maximise the value of apprenticeships while benefiting from these financial incentives:
- Plan the Pathway: Structure the apprenticeship to ensure that the apprentice gains meaningful experience and skills. This will not only help them perform better but can also encourage them to stay with your business after their apprenticeship ends.
- Consider Paying Above Minimum Wage: While the minimum wage is a legal requirement, paying a competitive wage can help attract the best talent, reduce turnover, and show that your organisation values its apprentices. Many businesses find that even a slight increase can significantly boost morale and productivity.
- Use Savings for Development: Redirect the savings from NI reductions into additional training or resources that can further develop your apprentice’s skills. This investment can pay off when apprentices become valuable full-time employees after completing their training.
- Stay Informed: The minimum wage and National Insurance rules for apprenticeships may change each year. Staying informed helps you remain compliant while also making the most of any available incentives.
Final Thoughts
Apprenticeships are not only a great way to build future talent but also provide financial benefits to employers through lower minimum wage requirements and National Insurance reductions. By understanding and utilising these incentives, employers can reduce costs while investing in the growth and development of their teams.
For apprentices, these programs offer a pathway to meaningful employment and skill-building without the traditional debt associated with higher education. In this sense, apprenticeships are a powerful tool for fostering both personal and professional growth, benefiting businesses and the economy alike.
