The business benefits of apprenticeship funding: how SMEs can develop their workforce with the new incentives

With recent and upcoming changes to the apprenticeship funding system and funding rules, SMEs now have greater flexibility and more funding options to support their workforce, along with significant financial incentives.

Small and medium-sized enterprises (SMEs) can gain many benefits by hiring apprentices and offering apprenticeships to their workforce. People Director Sasha Ashton sets out how businesses can make the most of these advantages that include workforce development, increased employee retention, and significant financial savings.

Benefits of apprenticeship funding for employees

Apprenticeships offer individuals a clear path to develop valuable skills while earning a wage. These programs often lead to professional qualifications and certifications, boosting long-term career prospects. For existing employees, apprenticeships provide opportunities to upskill, increasing job satisfaction and enabling career growth.

Benefits of apprenticeship funding for employers

SMEs can use apprenticeships to build a skilled and motivated workforce tailored to their specific business needs and addresses skills gaps. Offering these programs also supports employee retention and engagement, as clear career progression pathways reduce recruitment costs and turnover as well as making people feel valued.

Apprentices bring fresh ideas and energy into the workplace, improving productivity and sparking innovation. By supporting continuous learning, organisations can stay competitive and ensure their workforce remains adaptable to market changes. Apprenticeship programs can also help increase workforce diversity by attracting candidates from varied backgrounds and experiences.

Financial incentives for SMEs

In addition to workforce development advantages, SMEs can take advantage of several financial incentives that make apprenticeships a cost-effective option.

Government-Funded Training

SMEs with a pay bill below £3 million, contribute just 5% of training costs, with the government covering 95% or for apprentices aged between 16 and 21, the government will fund 100% of training costs.

National Insurance (NI) Savings

Employers do not pay Class 1 National Insurance for apprentices under 25 earning less than £50,270 annually, reducing payroll costs.

Access to Extra Funds

SMEs can benefit from unused levy funds transferred by larger employers, covering much or all of their apprenticeship training costs. As of April 22, 2024, the apprenticeship levy transfer allowance increased from 25% to 50% of a levy-paying employer’s previous financial year’s apprenticeship levy funds.

Incentive Payments

Employers hiring apprentices aged 16-18 (or under 25 if the apprentice has an education, health and care (EHC) plan or has been in care) receive an additional £1,000 payment per apprentice. This can be spent on any costs related to their employment, for example their salary, travel costs or uniform.

Apprenticeship reform

Skills England                               

Skills England is a government body whose key goals are to

• Close skills gaps in critical sectors.
• Support economic growth by developing a skilled workforce.
• Ensure training and apprenticeships align with future industry needs.
• Skills England plays a central role in shaping the UK’s approach to workforce development and skills training.

The first Skills England report, published in September 2024, revealed that employer investment in training is at its lowest level since records began in 2011, with investment per employee down by 19% in real terms. The report highlighted that over 2.5 million roles are in critical demand, with more than 90% being in roles that require training or education and brings to the fore the need for government reforms to the skills and apprenticeships system.

Government plans to reform apprenticeships

In September 2024, the government announced their plans for reforming the apprenticeship system. The goal is to create more apprenticeships and encourage young people to work in critical sectors to help to reduce skill shortages.

These are some of the proposed key changes:

Introduction of the Growth and Skills Levy

Replacing the Apprenticeship Levy with a broader funding system that supports various training programs across multiple sectors.

Greater flexibility

Funds will soon cover shorter training programs and more roles, making apprenticeships adaptable to a wider range of industries and business needs. The new Levy would also allow businesses to use funds on non-apprenticeship training, with a portion still reserved for apprenticeships.

Entry-level focus

The system will prioritise entry-level qualifications, helping SMEs fill critical skills gaps and support young talent entering the workforce.

Simplified processes

Administrative improvements are planned to make applying for and managing apprenticeships easier for SMEs.

Additional financial incentives

New incentives will support SMEs in high-demand sectors, such as health and social care, manufacturing, and technology, where skill shortages are most significant.

Maximising the benefits of apprenticeship funding

Apprenticeships offer SMEs a unique, cost-effective opportunity to develop talent, foster loyalty, and drive business growth. The new changes help businesses remain competitive while growing a skilled and motivated team for the future.

At People Puzzles, our team of expert People Directors are helping organisations optimise the government funding and make the most of their levy by:

• Developing a workforce strategy aligned with business objectives.
• Identifying skills gaps and using apprenticeships to address critical shortages.
• Designing career pathways and aligning relevant apprenticeships to define the required skills, training, and experience for progression.
• Partnering with training providers to tailor programs to the organisation’s needs.
• Establishing metrics to measure impact and return on investment (ROI).

With the right strategy, SMEs can use apprenticeships to secure their future success while supporting workforce growth and development.