Apprentice minimum wage: payday jackpot to fuel apprenticeship boom

UK businesses are under new payroll pressures following the announcement of a boosted national minimum wage next year. But the news brings positives for apprentices, who will gain the most from the planned increase.

Apprentices will see a huge pay bump of 21.2% when the new wage rates come into force next April, as the government endorses learning at work instead of university.

In the midst of a talent crisis, UK firms have struggled to find skilled workers who can fill hiring gaps. Many have resorted to inflating pay as a result, jeopardising cash flow.

For businesses worried about increased costs the incoming rates signal an opportunity to attract job-ready talent at a lower cost than employing new graduates.

New minimum wage

The increase to the National Living Wage – the formal name for the minimum wage – was announced last month, ahead of the government’s Autumn Statement.

Easily the biggest jump in salary has been for apprentices. Previously, those studying an apprenticeship course have accepted a marked decrease in hourly wages in return for learning new skills that guarantee a job.

Next spring, that is set to change. Apprentices are amongst those workers who will receive the biggest pay increase come April, with their average hourly wage rising by a massive 21.2% between 2024 and 2023 – twice the rate of inflation during the same period.

Younger workers will also benefit from the wage uplift. Next April, 21 and 22-year-olds, who currently earn £10.18 an hour, will have their pay matched with over 23s for the first time, up to £11.44 per hour for both age groups.

Nonetheless, the low cost of employing an apprentice over a graduate (typically aged 21 and over) should provide food for thought for SMEs.

Based on the new rates, a full-time 23 year-old employee contracted to work 37.5 hours per week will be paid around £22,308 per year, pre-tax. That’s compared to an apprentice, who would receive an annual salary of £12,480, pre-tax.

Government backs apprenticeships over university

The new minimum wage hike provides a glimmer of hope for young people. Students, in particular, have been disproportionately hit by the rising cost of living, with many forced to work alongside full-time study to settle rent and grocery payments.

But the new rates are also a thumbs up from the government for apprenticeship and training courses, which have previously been viewed as poorly paid in comparison to graduate roles.

The subtext is clear. Higher pay will incentivise school leavers to choose apprenticeships over unpaid university courses, and give businesses a greater pool of job-ready talent to choose from.

Indeed, the tide is turning, as employers come to view skills learned on the job as more valuable than those taught in the classroom.

This is backed up by a similar Multiverse report, which found that 70% of senior leaders think the current higher education system is leaving graduates underprepared for the workforce, causing Gen Zers to experience early onset career regret.

Businesses lambast pay boost

Business owners have expressed dismay at the updated minimum wage, which comes amid an economic crisis that has forced them to rely on personal savings. Some have even had to take on debt to stay afloat.

UK salaries have surged by record levels this year as entrepreneurs compete for talent. Smaller companies have struggled to keep up. This group tends to have smaller cash reserves to rely on, and are often most susceptible to the impacts of a higher national wage.

They may also have less flexibility to absorb the increased labour costs and need to make drastic changes to their operations to maintain profitability, such as cutting staff hours or making redundancies.

However, even large firms have reported that the cost increase will make their current headcount and pricing strategy untenable.

Electronics superstore Currys accused the government of failing to understand or care about retailers following the announcement. Meanwhile, leisure operator Hollywood Bowl are two major UK chains that have reported they will be unable to afford the wage increase for staff.

Chief executive Stephen Burns said the firm may need to raise prices next year to cover a “quite painful” increase, which he claims will cost the company about £600,000 in the second half of the current financial year, and £1.2m on an annual basis.

Benefits of apprenticeships

While an increase in cost, the change in minimum wage represents a significant opportunity for small businesses seeking cheaper ways to source skilled labour.

Analysis by apprenticeship provider Multiverse finds that apprentices have contributed over half a billion pounds in cost savings for SMEs.

Largely, this is due to lowered staff turnover. 93% of trainees remain at a company once qualified, on average, saving thousands in avoided hiring and onboarding fees.

The benefits go both ways. Far from “low-value”, apprenticeships offer equivalent qualifications (undergraduate or masters) in three to six years, while plugging business skill gaps and building a ready talent pipeline.

Trainees who are earning throughout will also avoid the tuition burdens faced by today’s graduates, which have left many uni leavers disappointed with their starting salary.

The same Multiverse report recently found that the average apprentice now earns around £28,000 a year, compared to £25,000 a year for the typical undergraduate.

As a result of shifting attitudes towards university degrees, prime minister Rishi Sunak –  who studied Philosophy, Politics and Economics at Oxford University – called for a crackdown on so-called “rip-off” university degrees that cause both employer and employee to lose out.

Under the plans, the Office for Students (OfS) will restrict the number of places on courses that do not lead to what it terms “good jobs” for the economy. This will encourage young people to start an apprenticeship as a more financially-viable option to university.

Interested in taking on an apprentice? Read our guide for expert advice on how to navigate the process of finding, employing, and managing an apprentice.