In the 2015 Queens speech, the Government set out to create 3 million new apprenticeships by 2020. As part of the Enterprise Bill, apprenticeships would gain the same legal treatment of degrees. ‘The Richard Review’ brings new standards being developed by ‘trailblazers’ and new funding trialled giving employers greater control over spend on training delivery.
An apprentice is a full-time paid job which incorporates on and off the job training, receiving a nationally recognised qualification. There are over 200 different types with study at Intermediate, Advanced, Higher and Degree levels. Additionally, Traineeships are also available for people who are unemployed or have little work experience so they can be prepared for an apprenticeship. Minimum standards apply such as: minimum length of 12 months; 270 houses of guided learning; 30 hours of work each week; training in English and Maths. Apprentices are employees and entitled to the same employment rights as other employees including holiday and maternity leave.
So what impacts does this have on payroll and the operation of PAYE – I will cover three: National Minimum Wage; National Insurance Exemption for Apprentices Under 25 and hints at the new Apprenticeship levy being introduced from April 2017.
National Minimum Wage – Apprentices aged 16-18 are entitled to £3.30 per hour for both work and time training. Those aged 19 and over are also entitled to £3.30 for the first 12 months and then the standard national minimum wage rates apply. So 18-20 years £5.80, 21-24 years £6.70 and with the introduction of the new Living wage, those 25 years and over, a new rate of £7.20 minimum.
As well as other funding grants employers see a new incentive introduced from 6th April 2016 in the form of the ‘Abolition of employer National Insurance (NI) contributions for apprentices under 25’. Where there is an apprenticeship in place, the employer will no longer pay the 13.8% secondary contribution up to the new Apprentice Upper Secondary Threshold (AUST). The reduction in NI is undertaken through the operation of new NI categories H (standard) and G (for mariner apprentices). When the apprenticeship ends then the employee will revert to the standard NI category letters, or if still aged under 21, then the equivalent appropriate under 21 NI category.
To qualify the employee must be under 25 years old and following an ‘approved UK government statutory apprenticeship framework). The employer needs to have evidence to be able to apply the relief. This can be: a written agreement between the employer, the apprentice and the training provider; evidence that the apprenticeship receives government funding. The written agreement would show: the government apprentice framework or standard; a start and the expected end date for the individual’s apprenticeship scheme.
Please note that with usual NIC practice, the judgement point of the age and status of whether an apprenticeship is in place is the point of the payment and applied to the full payment period with no pro-ration. The date of birth is critical payroll data along with a recording of the Apprenticeship start and stop date needed for validating the entitlement to both Under 25 Apprentices versus standard and Under 21 NI.
April 2017 sees the Apprenticeship levy which affects all employers that have a joint ‘annual paybills’ in excess of £3 million. On that basis less than 2% of employers will pay anything! The aim of the levy is to help deliver new apprenticeships, ‘Employer who are committed to training will be able to have back more than they put in’.
Announced in the Summer Budget 2015 and Autumn Statement, a levy will be charged at a rate of 0.5% payable alongside tax and National Insurance. ‘Paybill’ is to be based on the total employee earnings subject to Class 1 secondary NICs.
In potentially a similar way to the Employment Allowance (including the connected persons rule), each employer will receive one annual allowance of £15,000 to offset against the levy. Where there are multiple payroll and PAYEschemes, only one allowance may be claimed. The detail on how has yet to be decided. Is this a once off similar to the Employment Allowance or pro-rata cumulative across the tax year? How will employers and payroll combine multiple payrolls and PAYE scheme amounts together? Under which PAYE scheme is the levy applied? Watch this space…