Kickstart Scheme versus apprenticeships - what works best for employers?

In brief:

• If you only employ someone for six months, the Kickstart scheme is slightly more financially beneficial for most age groups (though not all) but the difference isn’t significant and the hidden cost of training them to be productive would be lost when they leave.
• If you plan to employ someone for 12 months or longer, the Apprenticeship scheme is more financially beneficial, PLUS:
  • you get several thousand pounds worth of training and tutor support in the workplace 
  • research has shown that apprentices improve productivity, staff morale and customer satisfaction

The detail

When Rishi Sunak announced his financial incentives for apprenticeships earlier this month, he also announced two other financial incentives for employers:

• A £1,000 Job Retention Bonus for retaining on payroll until the end of January any employee currently furloughed
• a new ‘kickstart scheme’ that will provide financial incentives to employers to employ young people.  

Employers could get up to £6,500 through the Kickstart scheme, which is significantly more than the incentives to employers employing apprentices. Understandably, many employers are asking themselves which option would be better for them.  

This article seeks to lift the fog a little and help employers make sense of the two schemes and the differences between them.

We wrote about the Apprenticeship incentives in our previous article that you can read here.  So we’ll start this one with some key points about the Kickstart Scheme:

• The job must be a new position - not displacing or replacing one that existed previously
• The job must be ‘high quality’ (although there is no guidance as yet as to how this will be measured)
• The proposed employee must be aged 16-24 years old when they start
• The proposed employee must be in receipt of Universal Credit
• The proposed employee must be considered by the Jobcentre as being at risk of long-term unemployment (though we still await guidance on how this will be determined)
• Employers will be expected to provide training (although not through the apprenticeship scheme) and/or job search support to improve the employee’s long-term job prospects
• Funding will only cover the relevant National Minimum Wage rate for the employee.  If the employer pays higher than the NMW, the difference remains a direct cost to the employer
• Funding is for 25 hours per week.  If the employee works more than 25 hours per week this also remains an additional direct cost to the employer
• Funding will cover six months of employment
• Funding will cover National Insurance and Mandatory pension contributions (‘on-costs’)

So for example:

a 25 year old working 25 hours per week could receive up to £6,500, made up of £5,867.50 base salary (£8.72 x 25 hours x 26 weeks) plus on-costs. If the employee was working full time (37.5 hours/week), the additional cost of c.£3,277 would still be payable by the employer.

For a 20 year old the subsidy would be worth c.£4,800 (including on-costs) with an additional cost of c.£2,400 if the employee was working full time.

These examples do not include any provision for training or other support employers are expected to offer participants in the scheme.

So how does this compare with the cost and benefit of employing an apprentice?

The National Minimum Wage for employing an Apprentice is £4.15 per hour.  If the apprentice is aged 19 or over, this is only payable for the first 12 months after which the rate increases to the standard NMW for the age group (e.g. £6.45 for a 20 year old).  Apprentices are exempt from paying National Insurance so on-costs are also lower.  

To be realistic, I’ll use £5 per hour (£5.25 with on costs) as the wage rate as even in a buyers market (rising to £7 for a 25+ year old), we’d recommend this to employers as the minimum required to secure a high calibre candidate.

The total minimum wage cost for an apprentice full-time for six months is therefore c.£5,100 ((or £6,100 for a 21-24 year old and £7,100 for a 25+ year old). However, if the apprentice is aged 16-24 the employer receives a £2,000 financial incentive bringing the net cost down to £3,100.  For a 25 plus year old the grant is £1,500 giving a net cost of £2,300.   (For a 16-18 year old there is an additional £1,000 incentive payment reducing net cost to £2,100.)

The table below provides a bit more detail and shows the difference between the two schemes when employing someone for 6 months.  (A positive number in the final column means the apprenticeship is more expensive.)

However the big difference is that an apprentice comes with an established, high quality 12-18 month training programme which itself is usually worth between £4,000 and £8,000.  So when you take everything into account the apprenticeship starts to look like much better value.

Furthermore, if you take into account the cost over a full year the benefit of the apprenticeship option looks even more attractive.  This is shown in the table below:

Of course the Kickstart scheme means you could employ someone for 6 months and then let them go.  However, you’d then lose all of the investment of time and energy you’ve made onboarding and training the individual.

In summary

The Kickstart Scheme may be useful if you want a low cost, short-term fix to fill a staffing gap that doesn’t require too much onboarding for 6 months or so.  However, if you’re looking for an incredibly cost-effective way of starting to build a team that can play a role in building your organisation through the recovery, in our view, the apprenticeship option provides a far higher quality and more cost-effective solution.