Apprenticeships provide invaluable experience for those who take on apprentice roles, giving them a taste of a certain industry or type of role, which may shape their career for years to come. For employers, apprentices serve as a valuable part of any team, providing support and new ideas – and occasionally an apprentice may choose to spend the rest of their career with the firm and work their way up to senior positions.
This is why National Apprenticeship Week serves as a reminder of the great work apprentices do and the value they bring. But from a legal and tax perspective, what are the rights of apprentices? Here, Gateley Legal’s Georgia Cowen and Ian Goodwin from audit, accountancy, advisory, and tax services firm Mazars take a look.
Employment laws protecting apprentices
An apprentice can be engaged under a contract of apprenticeship, an apprenticeship agreement or an approved English apprenticeship agreement as an employee. Generally speaking, the vast majority of the employment rights of an apprentice are the same as those that permanent employees benefit from.
Under the Working Time Regulations 1998 (WTR), the definition of a worker includes an individual who is employed under a ‘contract of employment’ or ‘any other contract, whether express or implied ... whereby the individual undertakes to do or perform personally any work or services for another party’ (regulation 2(1), WTR). Apprentices will therefore benefit from all rights that workers are entitled to under the WTR, whether employed under a contract of apprenticeship or an apprenticeship agreement. Apprentices under the age of 18, but over compulsory school age, have additional rights in relation to young workers.
Organisations employing apprentices must comply with all aspects of discrimination law, but a particular concern with apprentices is the risk of age discrimination. Government funding for apprentices’ training is generally tiered according to age, with higher funding for younger apprentices. There are so-called ‘incentive payments’ for recruiting a young apprentice (aged between 16 and 18), but it is risky for employers to put an upper age limit on applicants for their schemes based on funding eligibility, as this could directly discriminate against older applicants, unless the employer can show that the limit is objectively justified.
Employers should also ensure that apprentices’ terms of employment offered are consistent with those offered to other employees of similar status and length of service. If, as is likely, apprentices as a group are younger than the rest of the workforce, any differences in their terms and conditions may need to be objectively justified. Otherwise there may be indirect age discrimination. Note though, that it is not unlawful age discrimination to pay an apprentice less than the adult rate for the National Minimum Wage.
All apprentices will also be entitled to statutory maternity, paternity, adoption, shared parental pay and sick pay (subject to the usual qualifications).
Apprentices on an approved apprenticeship scheme are entitled to the Apprentice Minimum Wage, currently £5.28 per hour (£6.40 from 1 April 2024). Where this rate is paid, care is needed to ensure that those apprentices aged 19 and who have completed the first 12 months of their apprenticeship are moved onto the appropriate age-related National Minimum Wage band.
Although the published apprenticeship rate is lower than the rates for other employees aged 21 or over, it might be prudent to pay more to attract and retain the best talent, as well as avoid technical compliance breaches when an apprentice completes their training or the first year of their apprenticeship.
The Apprenticeship Levy is a ‘tax’ employers need to pay if their total payroll costs exceed £3m in a tax year. One word of warning – if an organisation is part of a group of companies, it will need to aggregate all the payrolls across the group to establish if the total exceeds £3m. If it does, a 0.5% Levy is applied to amounts above £3m across all relevant PAYE references. More details can be found here.
Separately, an advantage of employing qualifying apprentices under the age of 25 is that the employer will not pay any Class 1 NIC on their salary (providing they earn under £4,189 per month). This can really help from a cost perspective for businesses who are looking to focus training, development and innovation.
Further, where international students who are eligible to work in the UK take on an apprenticeship, some of the payments they receive in respect of the apprenticeship may be exempt from UK income tax if the UK has a double taxation agreement (DTA) with the country the student was resident in prior to their arrival in the UK. The basic provision in most DTA’s the UK has with other countries that contains a student article is that:
- a student or business apprentice, who immediately before coming to the UK was a resident of the other country; and
- is present in the UK solely for the purpose of their education or training.
If these criteria are met, the apprentice will be exempt from UK income tax on any payments they receive from outside the UK for the purpose of their maintenance, education or training. Other provisions, which may or may not be included, cover remuneration to supplement the student’s resources from employment in the UK, in some agreements, to specified monetary limits, exclude remuneration as articled clerks, or impose a limit on the number of years for which the exemption can be claimed.
Before the Apprenticeship Levy was introduced on 6 April 2017, any training costs not met from Government funding could be made subject to a repayment clause if the apprentice left before the end of the apprenticeship. There was always a risk that such a provision would be unenforceable as a penalty clause, but if the repayment was reduced over time to reflect the amount of service the employer has benefitted from, this could have been proportionate. Since the introduction of the Apprenticeship Levy, however, the position has been different, and apprentices should not be asked to contribute financially to the ‘eligible costs’ of training, on-programme or end-point assessment. Section 109 of the Finance Act 2016 provides that an employer or deemed employer is not permitted to recover the levy charge from payments made to a worker.
For completeness, the Apprenticeship Levy provides funding for qualifying training and end assessments. Where exhausted, or the employer’s paybill does not exceed £3m, there are other Government investment models to fund qualifying costs and assessments across all UK jurisdictions given that apprenticeship funding is devolved.
According to the latest Government figures, over 750,000 people were participating in an apprenticeship in England in 2023/23, which shows the size and scale of this employment type. As such, it’s clear to see that this is a popular and successful route to attracting young talent into an organisation and with the legal obligations being relatively straight forward to manage it is something that all employers should consider.