Employing an apprentice: what payroll teams need to know

National Apprenticeship Week, which takes place this week, highlights and celebrates the many great reasons for businesses of all shapes and sizes to take on apprentices. They can help freshen up and diversify your workforce, they can help plug skills gaps at a reduced cost, and they typically have a higher rate of retention. And, of course, they lead to great career outcomes for the individuals participating in a scheme.

In the eyes of the law, apprentices are a distinct group of employees within your workforce and specific rules apply regarding their employment rights and how they should be treated within your payroll system.

For organisations thinking about employing more apprentices this year, we’ve provided a short guide below on the most important payroll rules.

Apprentice pay rates

Apprentices are entitled to receive the national minimum wage, but the rate they receive depends on their age and how far into their apprenticeship they have progressed. Many employers pay above the minimum wage, but it’s worth staying on top of the current rates as they change every year.

From 1st April 2020, they will be as follows:

Apprentice: £4.15 p/h

Under 18: £4.55 p/h

18 to 20: £6.45 p/h

21 to 24: £8.20 p/h

25 and over: £8.72 p/h

Apprentices are entitled to the Apprentice rate of pay if:

• They are under the age of 19
• They are over the age of 19, but are in the first year of their apprenticeship

However, they are entitled to receive the minimum wage for their age group if:

• They are over the age of 19; and
• They have completed the first year of their apprenticeship

Remember that the apprentice must also receive at least the minimum wage for the time they spend training or studying, in addition to the time they spend working. What’s more, any money contributed to salary sacrifice can’t reduce pay below the relevant rate of minimum wage. Any overtime paid at a premium rate also doesn’t count towards the minimum wage, and must be treated separately.

Underpayment of the national minimum wage is on the rise, so it’s extremely important to put strong compliance measures in place. A 2017 report from the Learning and Work Institute actually found that more than a quarter (28%) of employers were not aware of the national minimum wage rate for apprentices.

At Zellis, our ResourceLink software performs automatic checks to highlight any individuals (including apprentices) who are at risk of being underpaid, so that the right action can be taken to correct the calculation before the payroll is finalised.

Working hours, holiday and sick pay

Under the Working Time Regulations 1998, apprentices are covered by the same rules for working hours and rest breaks as your regular employees. They must also be offered at least 30 hours of employment per week (which includes off-the-job training time) unless certain circumstances (for example, a disability or carer duty) prevent them from working this amount of time.

Similarly, they’re also protected by the Equality Act 2010, which requires them to be treated fairly and without discrimination.

Government guidance also stipulates that you must offer apprentices the same conditions as other employees at similar levels and in similar positions. This applies to:

• Paid holiday
• Sick pay
• Employee benefits
• Learning and development opportunities

Income Tax and National Insurance

There is a common misconception that apprentices don’t have to pay Income Tax and National Insurance contributions (NICs) in the same way as your other employees, but this isn’t the case. As per usual, the amount of tax they pay will depend on their earnings.

However, there is a specific rule for employers paying NICs to know about. Since April 2016, if you’re employing an apprentice under the age of 25 and following a UK government statutory apprenticeship framework, you’re exempt from paying Class I NICs. This rule was introduced to help improve value for employers taking on young apprentices.

The Apprenticeship Levy

Companies with an annual pay bill of over £3 million (liable to NI contributions) must pay the Apprenticeship Levy, which came into effect in April 2017. In short, this is charged at 0.5% of your annual pay bill and is paid to HMRC alongside Income Tax and NICs. An Apprenticeship Levy allowance of £15,000 per PAYE reference each year helps to reduce the cost. All the statutory units that contribute to an organisation’s PAYE reference need to share the allowance.

The money raised through the Apprenticeship Levy is held in a digital fund which can be used by the employer to pay for apprentice training. The rule applies to any organisation with a large enough pay bill, even if they don’t employ apprentices. This incentivises the use of apprentices where possible, especially as the funds expire after a certain period of time and can’t be reclaimed.

Getting your payroll organised

With many new payroll and employment law changes coming into effect from April 2020, employers must ensure their systems and processes are fully up-to-date and compliant.

If you need support with developing stronger payroll processes, learn more about what Zellis can offer and get in touch for an initial consultation.