The Employer's Guide to Apprenticeship Levy and Hiring Apprentices

You have a skills gap. You could hire someone fully trained (and expensive), or you could hire an apprentice and let the government fund most of the training. The Apprenticeship Levy is that funding pot. This employer's guide covers how it works, whether you pay into it, and how to hire apprentices to develop exactly the skills you need — often at a fraction of the normal recruitment cost.

What is the Apprenticeship Levy?

The Apprenticeship Levy is a tax on payroll directed toward apprenticeship training. If your annual pay bill is above £3 million, you pay 0.5% of that pay bill into the Levy (minus a small allowance). The money sits in a digital account that you can tap to fund apprenticeship training for anyone you employ.

Think of it as a ring-fenced skills budget. You pay it, you own an account, you spend it on apprenticeships. Unused funds expire after 24 months — so there's a real incentive to use them.

Pay bill below £3 million?

Most small businesses don't pay the Levy at all. But you absolutely can hire apprentices. Here's the funding model:

The government funds 95% of the training cost (up to a set funding band).
You pay the remaining 5%.
If you have fewer than 50 employees and you're hiring apprentices aged 16–18, the government often covers 100%.

That's already a strong incentive. But the real win is in the hiring process itself: an apprenticeship is a genuine job. The person is working for you, earning a wage (at the apprentice minimum rate, which is lower than the standard minimum), and contributing to your business while they train. It's not a trial period masquerading as development.

For more on complying with minimum wage and payroll obligations as an employer, see our guide to employer National Insurance contributions.

How Apprenticeships Actually Work

An apprenticeship is a job bundled with formal training. The apprentice works for you, earns a wage, and spends at least 20% of their time on off-the-job training delivered by an approved provider.

That off-the-job element is non-negotiable — it's defined by law. But training providers offer flexibility. You might get one day a week in a classroom, or block release (two weeks on, then back to work), or online modules. You arrange it around your business.

The basics

Duration: At least 12 months (often 18–24 months, depending on the standard).
Off-the-job training: Minimum 20% of paid working hours, delivered by an approved provider.
Wage: You pay the apprentice wage (currently set by the government, and lower than the standard minimum). Many employers pay more to attract stronger candidates.
Qualification: The apprentice works toward a nationally recognised qualification at a specified level (Level 2 to Level 7).
Assessment: At the end, there's an independent end-point assessment. Pass that, the apprentice gets the qualification.

Apprenticeship levels — what they mean

Level	What it's like	Example trades
Level 2 (Intermediate)	GCSE-equivalent	Plumbing, hairdressing, retail
Level 3 (Advanced)	A-level-equivalent	Carpentry, hospitality supervisor, software developer
Level 4–5 (Higher)	Foundation degree	Project management, accounting technician
Level 6–7 (Degree)	Bachelor's/Master's	Engineering, surveying, architecture

There are hundreds of approved standards across dozens of sectors. If you need a specific skill set, there's likely a standard for it. Browse the available standards on gov.uk.

Hiring an Apprentice: Step by Step

Step 1: Identify the role

Start with the business need. What skill is missing? What job would the apprentice actually do?

Apprenticeships work best when there's genuine work to be done. You're not hiring a trainee in the vague sense; you're hiring someone to fill a real role and develop in that role over time. Browse the available standards and find one that matches. If it doesn't exist, you might not yet be ready for that apprenticeship.

Step 2: Find a training provider

Your training provider delivers the off-the-job element. This might be a college, a university, or a specialist private training company.

Pick carefully. Questions to ask:

Do they deliver the standard you need?
What's their reputation and pass rate on end-point assessments?
How flexible is their delivery? Can they work around your schedule?
Do they support employers well, or do they just send invoices?

A good provider is a partner, not just a vendor.

Step 3: Recruit the apprentice

You can find candidates through:

The government's apprenticeship recruitment service
Direct applications to your business (advertise the role like any other)
Referrals from your training provider
Converting an existing employee into an apprentice (upskilling someone already in your team)

Apprentices must be at least 16. There's no upper age limit — you can offer an apprenticeship to anyone who hasn't already qualified at that level in that subject.

For hiring context, you'll want to ensure right-to-work checks for employers.

Step 4: Set up the apprenticeship

Once you've found your person and your training provider:

Sign an apprenticeship agreement (a legal document between you, the apprentice, and the provider).
Draw up a training plan with the provider.
Register the apprenticeship on the digital apprenticeship service.
Set up the apprentice on your payroll.

That last step matters. The apprentice needs to be in your payroll system with the correct minimum wage rate (often lower than the standard minimum), the correct National Insurance category (apprentices under 25 may use a reduced-rate category), and the right tax treatment.

Step 5: Support and manage

During the apprenticeship:

Assign real work that develops the skills in the standard.
Protect time for off-the-job training — don't expect them to catch up in their own time.
Assign a mentor or supervisor.
Conduct progress reviews (many providers structure these).
Give feedback and support.

Apprentices are employees. You manage them like employees. That includes having clear expectations, feedback, and if necessary, normal performance management.

Costs and Government Funding

Who pays for training

If you pay the Apprenticeship Levy (pay bill over £3 million):

You use your Levy account to pay the provider (usually the full cost, up to the government's funding band).

If you don't pay the Levy (most small businesses):

Government funds 95% of the training cost (up to the funding band).
You pay 5%.
Under 50 employees, hiring 16–18-year-olds? Government often pays 100%.

Training costs vary by standard and level. The government publishes funding bands for each standard (e.g., "Software Developer" might have a £9,000 band, meaning the government contributes up to £9,000 and you pay 5% of that).

Wages and payroll

The apprentice earns a wage. You set it, but it must be at least the apprentice minimum wage (currently lower than the standard minimum — check the government rate on gov.uk).

That wage goes through your normal payroll. Tax and National Insurance apply. Apprentices under 25 may use a reduced National Insurance category, which saves you employer NI. See our guide on processing your first payroll run for the mechanics.

Additional incentives

The government sometimes offers cash incentives for hiring apprentices — for example, a payment for hiring someone aged 16–18, or a disabled person. These change, so check apprenticeship incentives on gov.uk for current offers.

Benefits of Hiring Apprentices

You train them exactly as you need

Forget hoping to find someone with the perfect CV. You hire someone with potential and train them in exactly the skills your business needs. The qualification is just the formal recognition of what they've learned with you.

Low training cost

With government funding covering most or all of the training, apprenticeships are among the cheapest ways to bring skilled labour into a small business.

They contribute from day one

Apprentices are working. They're not sitting in a classroom full-time; they're 80% in your business doing real work. You get value immediately.

Retention and loyalty

Employees who train with you from the start tend to stay. They know your systems, your culture, and your way of working. Retention rates for apprentices are well above average for junior hires.

Upskilling your existing team

You don't have to hire a new person. You can take an existing employee and put them through an apprenticeship, giving them a recognised qualification and new skills. It's often cheaper and more effective than external training.

Common Concerns — and Why They're Worth Pushing Through

"We're too small."

Businesses with one or two employees successfully hire apprentices. The only requirement is a genuine role and someone to provide supervision. Small size is not a barrier.

"We can't afford the 20% off-the-job time."

Plan for it. Most training providers offer flexible delivery — one day a week, blocks of time, online learning — that you can schedule around operations. It's not a surprise if you plan from the start.

"What if they're not good enough?"

Apprentices are employees. If performance is inadequate after proper support and feedback, you manage it through normal performance procedures. They're subject to the same expectations and the same probation period as any other employee. See our probation-period guide for how to set that up.

"It's a lot of admin."

It is — but less than hiring someone fully trained and onboarding them from scratch. Payroll is straightforward (set the correct minimum wage and NI category, and your payroll software handles the rest). Registration is online. A good training provider handles most of the logistics.

Payroll and Compliance

Apprentices are processed through payroll like any other employee, with these specifics:

Minimum wage: Apply the apprentice minimum wage rate (currently lower than the standard minimum; check gov.uk).
National Insurance: Apprentices under 25 may use category H, which has a significantly reduced employer NI rate. See HMRC's rates and thresholds for current rates.
Tax and deductions: Tax, pension contributions, and other deductions are deducted as normal. Report via RTI as usual.
Training time: Time spent on off-the-job training must be paid time. It counts toward their 20% off-the-job requirement.

Most modern payroll software supports apprentice wage rates and NI categories. Relentify handles these automatically, so you can't accidentally mis-calculate the minimum wage or forget to apply the reduced NI rate.

Frequently Asked Questions

Q: If my pay bill is below £3 million, do I pay the Apprenticeship Levy?

A: No. The Levy only applies to employers with annual pay bills above £3 million. If you're below that threshold, you don't pay. You can still hire apprentices and access government funding (95% government, 5% you; or sometimes 100% government for small employers hiring 16–18-year-olds).

Q: Can I hire an apprentice to replace someone who left?

A: Yes. If someone leaves and you have work to do, hiring an apprentice is a valid choice. The apprentice will do real work while training. The economics are strong — government funds most of the training, and you get a productive employee at a lower wage.

Q: What happens if the apprentice leaves before the end of the apprenticeship?

A: They're an employee; they can leave with notice like any other employee (or you can end the arrangement, subject to employment law). The government funding isn't clawed back. You've still had the benefit of their work and effort. If you've paid your Levy, any unspent funds remain in your account for the next apprenticeship.

Q: Can an existing employee become an apprentice?

A: Yes. If you have someone in your team who doesn't yet have a qualification at the apprenticeship level you're offering, you can upskill them through an apprenticeship. They stay employed by you, earn a wage, and combine work with training. It's a great retention and development tool.

Q: How much time off do they get for training?

A: At least 20% of their paid working hours must be on off-the-job training. That's a legal minimum. If they work 40 hours per week, at least 8 hours must be training. Training providers usually structure this as one day per week, or blocks of time, arranged around your business.

Q: What's the difference between an apprentice and a regular employee undergoing training?

A: An apprentice is pursuing a nationally recognised qualification at a specified level, with at least 20% of their time on formal off-the-job training delivered by an approved provider. A regular employee might do internal training or online courses, but they're not working toward a formal apprenticeship standard. The government funds apprenticeships; it doesn't fund informal training. If you want government funding, you need the formal apprenticeship structure.

Q: If my pay bill is above £3 million and I use my Levy account to fund apprenticeships, am I also paying a 5% co-investment?

A: No. If you're using your Levy account (because you pay the Apprenticeship Levy), the Levy covers the training cost up to the government's funding band. You don't pay any additional co-investment. If you want to spend more than the funding band allows, you can, but that's your choice. Non-Levy employers pay 5% (or 0% for 16–18-year-olds in small businesses).

Q: Where do I find training providers?

A: Search the Register of Apprentice Training Providers on gov.uk. You can filter by apprenticeship standard, location, and delivery method. Interview a few. Ask about their support for employers, their end-point assessment pass rates, and their flexibility on scheduling.

The Bottom Line

Apprenticeships are a resource most small businesses haven't tapped. You're not hiring a junior at a junior wage and hoping for the best; you're hiring someone to fill a real role, the government funds most of the training, and you build exactly the skills you need. If you have a role that could benefit from someone learning on the job, an apprenticeship is worth serious consideration. And the payroll side is simpler than it sounds — the right software, like Relentify's accounting platform, handles the minimum wage and NI calculations automatically.