What is an SME apprenticeship?
An SME apprenticeship is a training programme designed for small and medium-sized businesses. It combines on-the-job experience with formal learning. Training is tailored to the needs of an SME, making sure it’s relevant and useful.
For SMEs, apprenticeships are a win-win. They help companies stay competitive by training future employees from scratch. This means they’re not hiring someone who's set in their ways - they’re shaping a worker who knows the business inside out. SME apprenticeships can reduce the skills shortages that affect many sectors.
An SME apprenticeship is a chance to start a career for a young person. It supports them to learn while they earn. It can also create the chance for full-time employment when they’ve finished their training.
Apprentices are vital for businesses and the UK economy. They bring fresh ideas and new skills to the workplace. Paying apprentices comes with different rules than paying regular staff. They have special rights under employment law. This means their payroll needs a different approach.
In this blog, we’ll explain the basics of SME apprenticeship funding. We’ll also look at the payroll rules that must be followed when hiring an apprentice. This guide is for anyone who wants to learn more about managing payroll for apprenticeships.
SME apprenticeship funding and eligibility: How to access government support and co-investment
SME apprenticeship funding helps businesses train new talent. One major source of this money is the Apprenticeship Levy. Large employers pay this tax to help fund training. Approximately 2% of employers in the UK pay the Apprenticeship Levy.
SMEs can get funding help through government schemes. Funding depends on the size of the business and the apprenticeship standards chosen. The government may share some of the costs with SMEs. This is called co-investment.
Key points for funding include:
- Funding sources: The Apprenticeship Levy and government support for apprenticeships
- Eligibility: The business size and the standards of the apprenticeship
- Co-investment: The government and the employer may share training costs
By understanding these options, businesses can better manage their apprenticeship funding.
Key payroll considerations for SME apprenticeships: Managing wages, training costs and compliance
Apprentices have the same employment rights as any other employee. They must be given a contract of employment and must be paid at least the National Minimum Wage for apprentices.
Details of their pay should be included in the contract of employment. Apprentices need to be paid for hours worked and for time spent learning. Training must be at least 20% of their normal working hours. They should receive a clear payslip to show what they earn and any deductions.
They’re also eligible for other conditions such as paid holiday, sick pay, pension contributions and employer benefits. These employment benefits should match other employees’ who work at a similar grade or role.
Payroll must record training hours and funding use. Keeping accurate records helps employers stay within the rules. It also proves that the business is following the law.
How the National Minimum Wage and National Living Wage applies to apprentices
The National Minimum Wage and National Living Wage rules apply to all employees, including apprentices. The government sets these rates each year. They specify the minimum hourly rate for apprentices. Employers can pay above the minimum rate, but it’s illegal to pay below.
For apprenticeships in the UK, the minimum wage is the National Minimum Wage and is currently set at £6.40 per hour. This will rise to £7.55 per hour from 1st April 2025. This rate applies to all apprentices aged 16-18.
The rate also applies to apprentices who are 19 and over, in their first year of an apprenticeship. Once they complete their first year, they must be paid the National Minimum Wage based on their age.
Here’s what you need to know:
- Age-related rates: Younger apprentices can earn a lower rate
- Simple calculation: Multiply the hourly rate by the number of hours worked and trained
- Stay updated: Check the latest rates as they change every year
These simple rules ensure that apprentices are paid fairly for their work and training time.
SME apprenticeship training costs: Managing training expenses
The UK government recognises the importance of apprenticeships. It offers financial support to run them. This lets employers focus on training without worrying too much about costs.
One of the biggest benefits for SMEs is funded apprenticeship schemes for young people aged 16 to 21. This means that up to 95% of the training costs are covered, so businesses can train apprentices for less. SMEs with annual payroll under £3m benefit from a further reduction towards training costs.
For apprenticeships that started before 1st April 2019, the government will pay up to 90% of the training cost. The balance of 10% is paid by the employer.
Government support for apprenticeships include:
- Different funding options that lower the cost of training
- Fully funded apprenticeship schemes for 16 - 21-year-olds
- Reduced contributions for smaller businesses with a lower payroll bill
Training is a big part of an apprenticeship. Employers must keep track of the hours an apprentice spends in training. Good record-keeping for payroll purposes is essential.
To manage training costs:
- Record training hours: Note every hour an apprentice spends in training
- Report costs: Clear records of training costs should be kept for audits
- Use funding wisely: Make sure you follow the rules for using government support
By tracking these costs, employers can show that SME apprenticeship funding is being used properly.
Tax and national insurance for apprentices: Ensuring accurate deductions and compliance
Apprentices pay tax and National Insurance like any other eligible employees. Their earnings must be processed correctly and this includes both wages and any training allowances. Payroll systems must deduct tax and NI accurately.
Tips for handling tax and NI:
- Accurate deductions: Check that every payment is taxed correctly
- Keep records: Save all payroll records.
- Automate calculations: Use payroll software to do this automatically
Following these guidelines keeps your business in line with HMRC rules.
Find out how PayCaptain helps employers stay compliant for SME Apprenticeships. Book a demo.
Pension contributions for apprentices: fulfilling legal obligations and building future security
Auto-enrolment rules for pensions also apply to apprentices. If an apprentice is over 22 years old and earns enough, they’re eligible to join a workplace pension scheme. For apprentices who aren’t eligible, if they’re earning between £6,240 to £10,000, they can choose to opt-in.
Here are the steps:
- Auto-enrolment check: Verify if the apprentice meets the earnings threshold
- Contribution calculation: Use the set percentage for employer (3%) and employee (5%) of ‘qualifying earnings.’ This is income over £6,240 a year to £50,270.
- Timely payments: Make sure payments are sent on time to avoid penalties
It’s important to calculate pension contributions correctly. This shows employers care about their future and keeps them compliant. HMRC-recognised payroll software auto-enrols employees and applies the percentages automatically, based on their eligibility.
Holiday entitlement for apprentices: How to calculate leave and manage holiday pay
Apprentices have the same holiday rights as other employees, which is 5.6 weeks of paid leave a year. Their holiday pay is calculated based on all hours worked, including training time. The process must be fair and clear.
Follow these steps:
- Standard calculation: Use the standard method to calculate holiday entitlement
- Clear payslips: Show holiday accrual on every payslip
- Consistent policy: Apply your company’s holiday rules equally across all employees
How to calculate holiday pay for apprentices with varying work schedules
To calculate holiday pay for apprentices in the UK with varying work schedules, the 12.07% accrual method is used. This means the total hours worked (and trained) by an apprentice is multiplied by 12.07% to work their holiday entitlement.
For every hour worked, they build up their holiday entitlement to the equivalent of 12.07% of that hour. This method is used for employees with irregular hours or part time workers.
An example calculation for apprentice’s holiday pay:
- An apprentice works 22 hours one week, 30 hours the next, 19 hours the next and 26 hours in the final week. This time includes learning time. This totals 97 hours worked in the pay period
- To calculate holiday pay, multiply the total hours worked (97) by 12.07%
- Calculation: 97 hours x 12.07% = approximately 11.71 hours of holiday pay accrued for that pay period
PayCaptain’s AI payroll automates the whole process for calculating holiday pay, even for apprentices with changing work schedules. It tracks every hour worked, plus training time, and applies the holiday accrual automatically. No manual calculations are needed. Employers get accurate holiday pay figures every time, saving time and reducing errors.
Sick pay for apprentices: Understanding eligibility for SSP
Apprentices are also entitled to Statutory Sick Pay (SSP). If they’re off work because of illness for more than four consecutive days, they may be eligible to SSP. Apprentices must meet the same eligibility criteria as other employees. This ensures fairness.
Consider these points:
- Eligibility: Confirm that the apprentice meets the SSP eligibility requirements
- Calculation: Use the apprentice’s average pay to work out SSP
- Policy consistency: Make sure your sick pay policy follows legal rules
Proper handling of sick pay builds trust and keeps records straight.
Find out how PayCaptain keeps employers compliant with SME apprenticeship payroll rules.
Payroll software and tools for managing apprenticeships: Tracking funding, calculating wages and ensuring compliance
Handling apprenticeship payroll manually is hard work and slow. Payroll software makes the job much easier, helping avoid errors and saving time. With the right payroll software, tasks and calculations can be managed quickly and easily.
HMRC-recognised payroll software offers features that help with apprenticeships:
- Tracking apprenticeship funding: It records all funding details
- Age-related NMW/NLW: The software uses the correct wage rate based on age
- Managing training costs: It keeps track of all training hours and costs.
- Generating reports: It creates payroll reports for Apprenticeship Levy compliance.
Using such software helps employers focus on their business. It lets them manage payroll without extra stress.
Apprenticeship payroll compliance and record-keeping: Ensuring accurate records and avoiding penalties
Accurate record-keeping is very important for all payroll-related tasks. It shows employers are following the rules for apprenticeship funding and employment law. Good records can save businesses from penalties later on. They must keep all relevant documents.
Keep these records:
- Apprenticeship agreements: Save all contracts and agreements
- Training records: Document every training session and cost
- Payroll records: Keep clear payslips, tax details and NI deductions.
The Education and Skills Funding Agency (ESFA) checks these records. If records are poor, employers might face fines. A robust system of record-keeping helps employers stay compliant and protect their business.
Common payroll issues related to apprenticeships
In February 2025, it was reported in FE Week that around 29% of apprentices in the UK receive less pay than they’re legally entitled to. One of the causes of this is they may not receive pay for time to study for qualifications required by their apprenticeship.
PayCaptain stops underpayment by automating every step of the payroll process. It takes all hours worked, plus training and applies the legal rates. PayCaptain also applies changes to NMW as they come into effect. Our payroll software automatically calculates pay on the apprentice’s age and where they are in their apprenticeship. It also runs reports to check for changes, errors and exceptions.
This means there’s no room for human error and full, fair pay for every apprentice.
Best practices for managing SME apprenticeship payroll
Managing payroll well needs regular checks and updates. This is not a one-time task. Best practices to follow include:
- Regular reviews: Employers should check the payroll processes often. This helps spot any mistakes early
- Open communication: Employers should keep in touch with apprentices and their training provider. This avoids confusion.
- Seek advice: If unsure, employers should ask a payroll specialist or HR consultant for help
- Conduct audits: Regular audits catch errors before they become problems
- Stay informed: Keep up-to-date with changes in apprenticeship funding and employment law
These practices help run a smooth payroll system. They also ensure businesses meet all legal requirements.
Key takeaways for managing SME apprenticeship payroll and boosting business growth
Apprenticeships are a great chance for SMEs to grow. They bring fresh energy and useful skills to teams. Managing apprenticeship payroll well is key to making the most of these opportunities. It requires clear record-keeping, careful planning and the right tools.
Every part of the payroll process counts. From calculating wages correctly to keeping up with the latest funding rules, each step is important. When employers follow the rules, the business is protected and apprentices supported.
Investing in apprentices is an investment in the future. Businesses benefit from lower recruitment costs, a steady flow of new talent and fresh ideas. This strengthens the wider economy.
In summary, managing SME apprenticeship payroll requires care and attention. The rules can be complex but using clear, simple steps makes them easier. With good record-keeping, regular reviews and the right payroll software, employers can meet their payroll obligations.
Find out how PayCaptain manages payroll for SME apprenticeships and keeps businesses compliant
